Convergence of Property Rights on the Convergence of Structural Changes

Abstract
The diffusion of emerging technologies into the global economy has fundamentally transformed economic structures and accelerated the reallocation of resources toward more productive sectors. This process, commonly referred to as structural transformation, plays a pivotal role in enhancing productive capacities and achieving sustainable development. Property rights constitute one of the key determinants of this process, providing the institutional foundation for efficient economic performance and optimal resource allocation. This study investigates the effects of different dimensions of property rights on structural transformation in 26 developing countries over the period 2011–2022. First, a Generalized Additive Model (GAM) was employed to examine the existence of nonlinear relationships, confirming significant nonlinear associations between property rights and structural transformation. Subsequently, the Quantile-on-Quantile Regression (QQR) approach was applied to explore the dynamic nature of these relationships across different levels of economic development. The findings reveal that the impact of property rights is highly contingent upon countries’ stages of development. The legal and political environment exerts a positive effect at lower levels of development but a negative effect at more advanced stages. In contrast, physical property rights have the strongest positive influence on structural transformation in countries with higher levels of development. Intellectual property rights emerge as a significant driver of innovation and structural reallocation only in the later stages of development. These findings suggest that policy priorities concerning property rights should be tailored to the specific stage of economic development of each country.
 
Extended Abstract
Purpose: Structural change serves as a fundamental pillar of long-term economic development, reflecting an economy’s capacity to reallocate resources from low-productivity activities toward sectors with higher productivity, technological sophistication, and greater value added. Despite its significance, many developing economies exhibit substantial gaps, both in the depth and pace of structural transformation, compared with advanced economies. Among the institutional foundations that can narrow this gap, property rights play a critical role. As institutions that shape economic security, investment incentives, innovation capabilities, and the efficiency of resource allocation, property rights influence not only economic performance but also the underlying dynamics of structural change. Nevertheless, empirical evidence on the nonlinear, heterogeneous, and development-dependent relationship between property rights and structural transformation remains limited.
The present study aims to examine how the convergence of property-rights institutions affects the convergence of structural change across 26 developing economies over the period 2011–2022. By employing advanced econometric techniques, the study seeks to identify which dimensions of property rights matter most at different stages of development and whether these effects remain stable or vary in the distribution of economic performance. In other words, the central objective is to understand how institutional improvements in property rights generate distinct structural-change outcomes depending on each country’s developmental stage. The goal is also to uncover the mechanisms through which property rights shape transformative economic processes.
 
Methodology: To address these objectives, the study applies two complementary econometric frameworks: The Generalized Additive Model (GAM) and Quantile-on-Quantile Regression (QQR).
First, panel data were collected for 26 developing countries. Structural-change indicators were constructed from the UNCTAD Productive Capacities Index and normalized relative to the average of advanced economies to capture convergence dynamics. Three key components of property rights, namely a) Legal and political environment (LP), b) Physical property rights (PPR), and c) Intellectual property rights (IPR), were extracted from the International Property Rights Index (IPRI).
The GAM model was initially estimated to test whether the relationship between property rights and structural change is linear or nonlinear. The preliminary results strongly indicated nonlinearity, asymmetry, and dynamic behavior, suggesting that traditional linear models such as OLS or standard panel regressions cannot accurately capture the true underlying patterns.
Given this evidence, the QQR method was employed as the main analytical tool. QQR allows for the assessment of how each quantile of a property-rights indicator influences each quantile of the structural-change index, thereby enabling a multidimensional examination of heterogeneous impacts. This approach reveals whether property rights have different effects in countries with low, medium, or high levels of structural development, and whether the influence changes across institutional quality levels. The model also includes lagged structural change to capture its dynamic nature.
 
Findings and Discussion:
Legal and Political Environment (LP): The legal and political environment shows a strong and positive influence on structural change in countries located in the lower quantiles of development. Improvements in judicial transparency, rule of law, contract enforcement, and corruption control can enhance investment confidence, reduce economic risk, and encourage productive activities. However, as countries move toward higher quantiles, the magnitude of LP’s effect diminishes and even becomes negative in certain regions. This pattern reflects an institutional Inverted-U relationship; once economies achieve a threshold level of institutional maturity, incremental legal-political reforms yield diminishing returns. At this stage, transformation becomes driven more by technological upgrading, innovation, and dynamic capabilities than by additional institutional strengthening.
Physical Property Rights (PPR): The role of physical property rights exhibits a distinct nonlinear pattern. In lower quantiles, PPR has weak or sometimes negative effects, due largely to inefficient property registration systems, administrative barriers, and limited financial access in early-stage economies. As institutional quality improves, the effect of PPR becomes increasingly positive, especially in middle and upper quantiles. In this context, formal property rights enable credit access, facilitate investment, and support the efficient allocation of capital. These findings align with the “dead capital” theory proposed by Hernando de Soto, highlighting the transformative potential of formalizing property in developing economies.
Intellectual Property Rights (IPR): The impact of IPR is highly dependent on a country’s technological capacity. In low-development contexts, strong intellectual property protection may restrict access to foreign technologies and imported knowledge, producing negligible or even negative effects on structural change. In contrast, in higher quantiles, IPR generates substantial positive effects by stimulating innovation, research and development (R&D), and the growth of knowledge-based industries. These results are consistent with endogenous-growth theories, emphasizing the importance of innovation systems at advanced stages of economic development.
Dynamic Nature of Structural Change: The lagged structural-change variable is positive and statistically significant across all quantiles, illustrating the self-reinforcing and path-dependent nature of structural transformation. Once a country embarks on a track of technological upgrading, learning spillovers, workforce skill accumulation, and productivity improvements accelerate further structural progress.

Conclusions and Policy Implications: The empirical results demonstrate that the influence of property rights on structural change is neither linear nor uniform. Instead, it is strongly contingent upon a country’s development stage and institutional maturity.
Early-Stage Priorities: Countries in the early stages of development should prioritize enhancing the legal and political environment. Enhancing judicial independence, reducing corruption, and securing basic property rights create the foundational conditions necessary for sustained structural transformation.
Middle-Stage Priorities: In the intermediate stages, the focus should shift toward enhancing physical property rights. Formalizing assets, improving property-registration systems, and expanding access to credit are crucial for enabling productive reallocation and investment.
Advanced-Stage Priorities: At higher development levels, intellectual property rights become the dominant driver of structural transformation. Strengthening innovation policies, supporting R&D activities, and protecting intellectual assets stimulate technological upgrading and facilitate entry into high-value industries.
No One-Size-Fits-All Approach: Institutional reforms must be sequenced and tailored to the developmental context of each country. Uniform policy recommendations are inappropriate, as property-rights reforms have different effects depending on the structural conditions of the economy.
Importance of Early Institutional Reforms: Because structural transformation is cumulative and path-dependent, initiating institutional reforms early can place economies on a higher long-run development track. The earlier the reforms begin, the greater their long-term payoff.