What Makes Poor Countries Poor?
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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.
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Chapter 3: The Property Rights/Contract Rights Development Nexus

Michael J. Trebilcock and Mariana Mota Prado


It has become conventional wisdom amongst most economists that, whatever else the state does, it should provide effective institutions and processes to protect private property rights and enforce contracts, which are regarded as prerequisites to efficient and dynamic market economies. In the words of two prominent law and economics scholars in a forthcoming book, Solomon’s Knot, ‘inadequate institutions to enforce property and contract law are the most fundamental defect in the legal framework of poor countries’.1 On this view of the rule of law, law plays a critical instrumental role in promoting economic development and should be accorded the highest developmental priority. In the first part of this chapter, we address the property rights protection pillar of this conventional wisdom, then in the second part turn to the contract rights pillar. I. A. PROPERTY RIGHTS2 Introduction The significance of property rights for economic growth has been the subject of much writing by development theorists and policymakers alike. The so-called ‘Washington Consensus’ identified property rights protection as one of the major areas of reform for the developing world.3 1 Robert Cooter and Hans-Bernd Schaefer, Solomon’s Knot (Princeton University Press, forthcoming) (manuscript at 12); see also Kenneth W. Dam, The Law-Growth Nexus: The Rule of Law and Economic Development (Brookings Institution Press, 2006) at 91 (‘Proponents of the rule of law in the context of economic development often express the core of their position . . . by emphasizing the need to “enforce contracts and protect property rights.” ’) 2 This discussion of property rights...

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