van Hemmen, Stefan; Stephen, Frank H. --- "Rule of law, finance and economic development: cross-country evidence" [2005] ELECD 108; in Marciano, Alain; Josselin, Jean-Michel (eds), "Law and the State" (Edward Elgar Publishing, 2005)

Book Title: Law and the State

Editor(s): Marciano, Alain; Josselin, Jean-Michel

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781843768005

Section: Chapter 7

Section Title: Rule of law, finance and economic development: cross-country evidence

Author(s): van Hemmen, Stefan; Stephen, Frank H.

Number of pages: 57

Extract:

7. Rule of law, finance and economic
development: cross-country
evidence*
Stefan van Hemmen and Frank H. Stephen

1 INTRODUCTION

Starting with the contributions of La Porta, Lopez-de-Silanes, Shleifer
and Vishny (1997a, 1998), and concerned with the production of eco-
nomically efficient laws, law and economics scholars have increasingly
focused their attention on the chain which connects legal rules (that is,
formal institutions) and their enforcement to financial and economic
growth. This approach has potential interest for policy makers and
responds to the needs of governments involved in large-scale economic
reform programmes. The focus on institutions and their importance for
economic development (Davis and North 1971; North 1981, 1990) con-
nects with the so-called `structural reforms' that have been actively
encouraged by the World Bank and the International Monetary Fund
(IMF) in the last ten years or so. In terms of Williamson's (2000) con-
ceptual framework, reforms have effects on both the institutional environ-
ment and on governance. Changes in the former may take 10 to 100 years
to evolve (or are socially and economically too costly to be achieved in the
short term), setting the context within which governance structures are
designed. Policy makers are conditioned by institutions that can be taken
as exogenous in the short term. Rodrik et al. (2004) find it helpful to think
of policy as a flow variable, in contrast to institutions, which is a stock
variable. They view institutions as the cumulative outcome of past policy
actions:

Policies ...