What Makes Poor Countries Poor?

What Makes Poor Countries Poor?

Institutional Determinants of Development

Michael J. Trebilcock and Mariana Mota Prado

This important book focuses on the idea that institutions matter for development, asking what lessons we have learned from past reform efforts, and what role lawyers can play in this field.

Chapter 2: The Rule of Law and Development: In Search of the Holy Grail

Michael J. Trebilcock and Mariana Mota Prado

Subjects: development studies, law and development, economics and finance, institutional economics, law and economics, law - academic, law and development, law and economics


INTRODUCTION Recent empirical research on the relationship between the nature and quality of a country’s institutions and development outcomes purports to demonstrate, inter alia, that improvements in the rule of law are likely to have dramatic impacts on development outcomes. For example, as noted in Chapter 1, according to the World Bank, an improvement in the rule of law by one standard deviation from the current levels in the Ukraine to those middling levels prevailing in South Africa would lead to a fourfold increase in per capita income in the long run.1 Similarly, according to Rodrik et al., an ‘increase in institutional quality’ (measured largely in terms of the strength of private property rights and the rule of law) ‘of one standard deviation, corresponding roughly to the difference between measured institutional quality in Bolivia and South Korea, produces a 2 log-points rise in per capita incomes, or a 6.4-fold difference’.2 Reflecting this view of the relationship between the rule of law and development, beginning in the 1990s there has been a massive surge in development assistance for law reform projects in developing and transition economies involving investments of many billions of dollars.3 There has also been a major resurgence of scholarly interest in the relationship between law and development. Proponents of an optimistic view of the relationship between the rule 1 Daniel Kaufmann, ‘Governance redux: the empirical challenge’, in Xavier Sala-i-Martin (ed.), The Global Competitiveness Report 2003–2004 (New York: Oxford University Press, 2004). 2 Dani Rodrik, Arvind Subramanian and...

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