Property rights and investment: the mediating effect of contract enforcement

Abstract

Purpose

The purpose of this paper is to empirically test whether enforceability mediates the relationship between property rights and investment in housing, using data from land formalization project in Addis Ababa, Ethiopia.

Design/methodology/approach

The study was cross-sectional in design; data were collected from a sample of 210 households that benefited from the recent Addis Ababa city land and buildings formalization project. Confirmatory factor analysis was used to assess the goodness-of-fit of the latent structures underlying the constructs. Mediation was tested using the Baron and Kenny steps, combined with bootstrapping technique. Robustness of results was checked.

Findings

The results indicate statistically significant mediation effect of contract enforcement. However, the mediation is partial, there is still a substantial direct effect of security of property rights on investment.

Practical implications

Any initiative to land formalization projects needs to consider contract enforcement environment, as presence and size of property rights effects largely depend on whether those rights are properly enforced.

Originality/value

This is the first study that conceptualizes the mediating effect of contract enforcement on the relationship between property rights and investment from an African country perspective.

Citation

Hailu, Z., Nkote, I.N. and Munene, J.C. (2017), "Property rights and investment: the mediating effect of contract enforcement", International Journal of Law and Management, Vol. 59 No. 1, pp. 21-34. https://doi.org/10.1108/IJLMA-06-2015-0031