The Rule of Law and Economic Development

TLDR

The concept of rule of law has evolved to encompass security, court operations, and justice administration, with its core logic linking property rights and contract integrity to investment, trade, and economic growth, while recognizing that both formal and informal institutions shape these outcomes. The authors aim to review theoretical and empirical research on rule of law, highlighting its links to economic development. They synthesize diverse theoretical and empirical strands by academics and practitioners to map the connections between rule of law and economic development. The authors caution that development assistance may not effectively establish rule‑of‑law institutions, as institutional change is complex.

Abstract

With the enormous expansion of scholarship on this subject, “rule of law” has come to mean different things—ranging from security and order to the operations of courts and the administration of justice. We review the various streams of theoretical and empirical research by academics and practitioners, emphasizing the connections to economic development. The core logic is that security of property rights and integrity of contract underpin, respectively, investment and trade, which in turn fuel economic growth and development. However, property rights and contracts rest on institutions, which themselves rest on coalitions of interests. Formal institutions are important, but, particularly in developing countries, informal institutional arrangements play a significant part as well. These considerations lead us to caution against an exaggerated confidence in the ability of development assistance to implant new institutions for the rule of law.