Law and Development: Dawn of a New Era?

Abstract

There is general understanding that the law and development movement of the 1960s and 1970s ended in failure. Currently there is a widespread agreement among researchers and within the policy community that the nature and content of a country's legal system has an effect on its economic growth and level of development. It seems that the pitfalls of the first law and development movement have been identified and overcome, in particular by the heavy influence of economists and econometrics. Those, amongst others, have on the one side caused a profound change in approach but on the other side opened further sources of concern. Dampening the positive forecasts, Kevin E. Davis has expressed concerns about the legal data on which the current optimism is based. At the moment two data sets collecting data of country's legal environment resound throughout the academic world. LLSV's Law and Finance as well as the Worldbanks Doing Business database purport to collect useful legal data in order to facilitate research and policy work.

Starting with an outline of the first law and development movement by explaining the common assumptions of its proponents and the failures made, Section two describes the framework in which the current approach is embedded and contrasts its differences to the first movement. Section three assesses the basis for the current optimistic view followed by section four sketching Davis' concerns in general. This is followed by an examination if those concerns are applicable to the legal data used in parts of the Law and Finance literature and the Doing Business database. The paper concludes that, although the significant change in method gives cause to optimistic forecasts, it contains pitfalls as well because the variables employed as measures for legal frameworks may be flawed.

Keywords: Law and Development, reasons for failure, new approach, Law and Finance, Doing Business database

JEL Classification: O00, O19, O20