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Creating a Legal Framework for Economic Development

Source: www.worldbank.org
Topic: Economic Development

Sort Desciption: It used to be common in the economic literature on development to enumerate the ..... Legal Process and Economic Development: A Case Study of Indonesia. ...

Content Inside: The World Bank Research Observer vol. 13 no. 1 (February 1998) pp. 111 1998 The International Bank for Reconstruction and Development / THE WORLD BANK 1 Creating a Legal Framework for Economic Development Richard A. Posner A modernizing nations economic prosperity requires at least a modest legal infrastructure centered on the protection of property and contract rights. The essential legal reform re- quired to create that infrastructure may be the adoption of a system of relatively precise legal rules as distinct from more open-ended standards or a heavy investment in upgrad- ing the nations judiciary. A virtuous cycle can arise in which initially modest expendi- tures on law reform increase the rate of economic growth in turn generating resources that will enable more ambitious legal reforms to be undertaken in the future. It used to be common in the economic literature on development to enumerate the multitudinous sources of market failure and prescribe complex government inter- ventions to cure them without paying much attention to the equally numerous sources especially in poor countries of governmental failure (Stiglitz 1994). A 1995 confer- ence on legal reform as well as other recent judicial reform initiatives (Rowat Malik and Dakolias 1995; Dakolias 1996) attest to the growing awareness that the failure of governments in poor countries to provide the basic framework of a capitalist economy may be an important factor in keeping poor countries poor. Markets are more robust than some market-failure specialists believe. But their vigor may depend on the establishment of an environment in which legal rights especially property and contractual rights are enforced and protectedan environment that is taken for granted in wealthy nations (see Gray 1991 and Rausser 1992 for good statements of this essentially Weberian point). The citizens of wealthy countries take this legal machinery for granted because it works well enough most of the time and because ...

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