Weak property rights hinder reinvestment, stifling economic growth in post-communist countries.
The article "Property Rights and Finance" explores whether weak property rights or limited access to external finance is a bigger obstacle for private sector investment. The researchers surveyed new firms in post-communist countries and found that weak property rights discourage firms from reinvesting their profits, even when bank loans are available. In places where property rights are strong, firms tend to reinvest their profits, but in areas with weak property rights, entrepreneurs are hesitant to invest from retained earnings.