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Law and Development

An Institutional Critique

Frank H. Stephen

This book draws on the analytical framework of New Institutional Economics (NIE) to critically examine the role which law and the legal system play in economic development. Analytical concepts from NIE are used to assess policies which have been supported by multilateral development organisations including securing private property rights, reform of the legal system and financial development. The importance of culture in shaping the legal environment, which in turn influences financial sector development, is also assessed using Oliver Williamson’s ‘levels of social analysis’ framework.
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Chapter 3: Legal Origin Theory and the transplant effect

An Institutional Critique

Frank H. Stephen

Extract

Chapter 3 considers legal reform in developing countries through an examination of Legal Origin Theory which argues that economies based on the Common Law have higher growth levels than those based on Civil Law. This theory is outlined and evaluated. A powerful critique of Legal Origin Theory (as a foundation of policy) is provided by the transplant effect. This considers the factors which influence the effectiveness of transplanting laws or parts of legal systems from one jurisdiction to another. Whether a transplant is successful or not is related to the motives behind the transplant. Is the recipient jurisdiction receptive to the transplant? Is there a demand for the transplant? When neither of these is the case, transplants will increase transaction costs and lower legal effectiveness. This chapter examines the evidence to support this approach and discusses its implications for legal reform as a route to development.

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