Law & Economic Development:Why many developing countries could not

realize necessary legal conditions for economic growth?

Iraj BabaeiLaw & Economic Institute of Erasmus

University RotterdamJune 2009

Introduction• Attention to the role of law in the growth in developing

countries• Transplantation of legal rules & systems for the realization

of development• Interest of western intellectuals in the cause & obstacles of

development in developed and developing countries• Creation of funds and institutions for study and help of

developing countries and advising them the proper measures

• Failure of efforts in the majority of cases• Principal question : why efforts have failed? • Subject of lecture : why have legal measures failed to

realize the necessary legal conditions of eco development?

I – Theories about how law could affect economic development

• The Law and Development Movement: Law reform could lead social change, and itself could be an engine of change. Transplantation of new law according to law in developed society is a good way to perceive need for rapid and direct change and could be realized by a top-down act of States.

• New Institutional EconomicsIt emphasizes on the role of institutions, defined as the rules of game in a society. Good institutions provoke eco development.Institutions are the patterns of interaction that govern and constrain the relationships of individuals and include formal and informal rules. Protection of property by proper institutions is motor of eco development.

Necessary legal conditions for economic development

• Investment is the key of economic growth. • Necessary legal conditions for investment: 1.Protection of Property rights2.Enforcement of Contracts• Rule of law• Explanation of role of Law by combination of

investment & innovation (Cooter & Schaeffer)

Institutional obstacles for the realization of conditions

• Institutional obstacles in developing countries: Limited Access Order – Structure of these societies rejects establishment

of rule of law and so equal legal protection– Non Competitive climate rejects protection of

property rights & enforcement of contract for non elites and so minimize incentive for investment and innovation

– Absence of political will for creating institutional conditions for eco development

My Observation• Leaders of developing countries are aware of the

general conditions for the realization of eco growth

• Realization of these conditions needs detailed knowledge about proper measures conforming to the institutions and conditions of each society

• Eco growth as a process & not an event• The Knowledge is the affaire of intellectuals of

the same society• Problems of the existence & transfer of

Knowledge to policy makers

…

• Conditions for the production & transfer of Knowledge to policy makers:– Existence of a competent body of intellectuals & social scientists

in the society– Involvement of intellectuals in the problems of society, as the

research & scientific activities devoted to problem finding & resolving

– Close relation between policy makers & intellectuals, as they refer in their decision to ideas & advices prepaid by intellectuals

• Other problem: implementation of necessary measure needs competent administration & policy makers

Conclusion• Fundamental obstacle: Limited access order structures

which restrict competition & systems of better choice in administration of society & economic activities

• Vital practical condition: Know conform measures for eco development need the existence of intellectual capacity in the society & instructive exchange between policy makers

• Absence of actual knowledge & relation • Instructive relation between intellectuals (scholars,

researches, thinkers) & policy making enhances intellectual capacity & makes profit for policy makers to Know proper measures for development