What are the simplest relationships between rule of law and economic development as applied, for example, to a country like China? I’ve been rereading parts of Kenneth Dam’s book, The Law-Growth Nexus (Brookings Institution). I think the most important findings can be summarized in four key points.
1. Legal institutions are a vital determinant of every country’s economic progress. Dam suggests this has now been recognized even by policymakers in China, which is not, as some others Western scholars insist, immune from the imperative to create a modern legal order for market regulation.
2. Although he argues that on balance the ‘causation runs from institutions to growth rather than vice versa’, Dam emphasizes that economic crises and expansion of markets create the appropriate and strong pressures for legal reform.
3. The weight of legal theory and historical evidence suggest neither common law nor civil law will be superior in the encouragement it gives to economic development. A country’s ‘legal origin cannot be changed’, and the difficulties and costs of changing a legal system or legal culture make conversion from one to another impracticable.