Property Rights

Here's a good example of the importance of property rights to economic growth (from today's Financial Times):

China's land reforms have had two stages. The first, from 1979 to 1989, entailed breaking up the Maoist collective farms and granting farmers 15-year rights to individual plots of land.

The result was a huge increase in rural wealth. In the 1980s the value of China's agricultural output, in constant prices, rose 86 per cent. Rural per-capita income soared 192 per cent. Average rural incomes, just 39 per cent of average urban incomes in 1978, rose to 55 per cent in 1983. This surge in wealth provided much of the capital for the subsequent industrial expansion.

And what if property rights are insecure? The Financial Times explains

In the 1990s, as the original 15-year terms began to expire, they were replaced by 30-year terms. Rural land management laws passed in 1998 and 2002 also required villages to provide farmers with contracts certifying their land use rights. But for most of China's farmers these property rights remain insecure. Village leaders can arbitrarily "readjust" land rights at a moment's notice, changing boundaries or even forcing farmers to move from an old plot to a new one.

As a result, farmers are reluctant to make investments that could enhance their productivity but might take years to recoup. These include building permanent greenhouses so they can grow high-profit vegetables all year round.