Demographic Structure and the Security of Property Rights in Developing Countries – An Empirical Exploration

It is often argued that countries with a high population share of children and young workers should attract large capital inflows from aging industrialized economies. However, many of these countries deter foreign investors by a high risk of creeping or outright expropriation. In this paper we explore whether the correlation between countries’ demographic structure and the perceived security of property rights reflects a causal relationship. We show that, once we control for other potential determinants of expropriation risk, the ratio of young to old workers has a positive effect on the perceived security of property rights in low-income countries. This effect is the stronger the more democratic the political system.