Data

Wednesday, March 28, 2012 5:12 PM. by

This section presents the concept behind the International Property Rights Index, the three core components, and the 10 variables used to compile it. It also includes detailed explanatory notes on the methodology employed and the country set of the 2012 IPRI . Finally, it points out some of the limitations of this study and presents future consideration.

The Concept

The goal of developing the IPRI is to serve as a barometer of the security of property rights across the world.To conceptualize property rights for the purposes of this study, the author reviewed a wide range of literature on property rights. Additionally, as has been done in previous index compilations, several experts and practitioners in the field of property rights have been consulted to finalize the set of core categories (hereto referred to as “components”) as well as variables (“sub-components”) that make up those components.

The following are the three core components of the IPRI:

1. Legal and Political Environment (LP)
2. Physical Property Rights (PPR)
3. Intellectual Property Rights (IPR)

The Legal and Political Environment (LP) has a significant impact on the security and protection of physical and intellectual property rights. As such, measures of legal and political environment are much broader in scope, serving to provide an insight into the impact of political stability and rule of law on an economy.

The other two components of the index – physical and intellectual property rights – reflect the two forms of property rights, both of which are crucial to economic development of a country. The variables included in these two categories account for both de jure rights and de facto outcomes of the countries considered.

Variables

The 2012 IPRI is comprised of a total of 10 variables, which are divided into the three main components: Legal and Political Environment (LP), Physical Property Rights (PPR), and Intellectual Property Rights (IPR). Despite a large number of property rights related variables considered by the author, the final IPRI study focuses only on core factors that directly relate to the strength and protection of physical and intellectual property rights. The final ranking is very similar to the alternative rankings calculated with other factors included. Finally, preference was given to the variables that were available for a greater number of countries and were updated on a regular basis to ensure that the resulting scores were comparable across countries and years.

Of the 10 variables incorporated into the index, the Registering Property variable is made up of two sub-variables. In sum, the IPRI comprises 11 data points for each country.

1. Legal and Political Environment (LP)

• Judicial Independence
• Rule of Law
• Political Stability
• Control of Corruption

2. Physical Property Rights (PPR)

• Protection of Physical Property Rights
• Registering Property
• Access to Loans

3. Intellectual Property Rights (IPR)

• Protection of Intellectual Property Rights
• Patent Protection
• Copyright Piracy

Legal and Political Environment (LP)

Even the most comprehensive de jure property rights cannot be enforced unless a strong rule of law and independent judiciary are present to enforce them. And as we witness the recent events across the Middle East, lack of property rights and economic freedom can breed economic and political instability. Therefore, the author considers the following four sub-components constituting the Legal and Political Environment (LP) component as important attributes in explaining a country’s system of property rights.

Judicial Independence

This variable examines the judiciary’s freedom from influence by political and business groups. The independence of the judiciary is a central underpinning for the sound protection and sovereign support of the court system with respect to private property.
Source: World Economic Forum’s 2011-2012 Global Competitiveness Index

Rule of Law

This variable measures the extent to which agents have confidence in and abide by the rules of society. In particular, it measures the quality of contract enforcement, police, and courts, as well as the likelihood of crime and violence. The variable combines several indicators, including fairness, honesty, enforcement, speed, and affordability of the court system, protection of private property rights, and judicial and executive accountability. This variable complements the judicial independence variable.
Source: World Bank Worldwide Governance Indicators, 2011 Update

Political Stability

The degree of political stability crucially influences one’s incentive to obtain or to extend ownership and/or management of property. The higher the likelihood of government instability, the less likely people will be to obtain property and to develop trust in the validity of the rights attached.
Source: World Bank Worldwide Governance Indicators, 2011 Update

Corruption

This variable combines several indicators that measure the extent to which public power is exercised for private gain. This includes petty and grand forms of corruption, as well as ‘capture’ of the state by elites and private interests. Similarly to the other variables in the LP component, corruption influences people’s confidence in the existence of sound implementation and enforcement of property rights. Corruption reflects the degree of informality in the economy, which is a distracting factor to the expansion of respect for legal private property.
Source: World Bank Worldwide Governance Indicators, 2011 Update

Physical Property Rights (PPR)

A strong property rights regime commands the confidence of people in its effectiveness to protect private property rights. It also provides for seamless transactions related to registering property. Finally, it allows access to credit necessary to convert property into capital. For these reasons, the following variables are used to measure private physical property rights protection (PPR).

Protection of Physical Property Rights

This variable directly relates to the strength of a country’s property rights system as it reflects experts’ views on the quality of judicial protection of private property, including financial assets. Additionally, it encompasses professionals’ opinions on the clarity of the legal definition of property rights.
Source: World Economic Forum’s 2011-2012 Global Competitiveness Index

Registering Property

This variable reflects businesses’ point of view on how difficult it is to register property in terms of the number of days and procedures necessary. According to the source of this information, the variable records the full sequence of procedures necessary to transfer the property title from seller to buyer when a business purchases land and a building. This information is critical because the more difficult property registration is, the more likely it is that assets stay in the informal sector, thus restricting the development of the broader public understanding and support for a strong legal and sound property rights system.Moreover,registration barriers discourage the movement of assets from lower to higher valued uses. This variable reflects one of the main economic arguments set forth by Hernando de Soto.
Source: The World Bank Group’s 2012 Doing Business Report

Access to Loans

This variable is included in the IPRI because access to a bank loan without collateral serves as a proxy for the level of development of financial institutions in a country. Financial institutions play a complementary role, along with a strong property rights system, to bring economic assets into the formal economy.
Source: World Economic Forum’s 2011-2012 Global Competitiveness Index

Intellectual Property Rights (IPR)

The IPR component evaluates the protection of intellectual property. In addition to an opinion-based measure of the protection of IP, it assesses protection of two major forms of intellectual property rights (patents and copyrights) from de jure and de facto perspectives, respectively.

Protection of Intellectual Property Rights

This variable contains opinion survey outcomes reflecting a nation’s protection of intellectual property; therefore, it is a crucial aspect of the IPR component. Expert participants in each country were asked to rate their nation’s IP protection, scoring it from “weak and not enforced” to “strong and enforced.”
Source: World Economic Forum’s 2011-2012 Global Competitiveness Index

Patent Protection

This variable reflects the strength of a country’s patent laws based on five extensive criteria: coverage, membership in international treaties, restrictions on patent rights, enforcement, and duration of protection.
Source: Ginarte-Park Index of Patent Rights (2005)

Copyright Piracy

The level of piracy in the IP sector is an important indicator of the effectiveness of the intellectual property rights enforcement in a country. Information for this variable was collected from the International Intellectual Property Alliance’s (IIPA) submission to the Special 301 Report, prepared by the U.S. Trade Representative in the context of its annual review of countries’ intellectual property practices. It contains information on the piracy level for copyright-protected industries, including Business Software and Records & Music. Because this variable reflects de facto outcomes based on ‘hard data,’ it rates a country according to its effectiveness in protecting IPR. Data from the IIPA was supplemented with the most updated available statistics from the Business Software Alliance.
Source: International Intellectual Property Alliance’s 2010 Special 301 Report, Eighth Annual BSA and IDC Global Software Piracy Study (2010)