The Rule of Law and Economic Development: A Cause or a Result ?

Abstract

The legal reform has become the major category of international aid, as it has been recognized that the institutional reform matters in development (World Bank 2002). Now the development can be restated as the comprehensive reform of institutional structure in the developing societies. The rule of law has become the symbol of the institutional reform and the rule-of-law projects have been undertaken all over the world. However, the outcome of those projects is now questioned: what has been brought about through the rule-of-law projects? If we focus on the relevant problem of the relationship between the rule of law and economic development, discussions continue between the opposite views. On the one hand, there is a belief that the rule of law facilitates the economic activities and it is a necessary precondition for economic growth (see 2 (1) below). On the other side of the view, it is criticized that the rule of law is not “a path to development” but “a highly desirable result of development” (Upham 2001). This chicken-or-egg like question seems to depend ultimately on the definition of the rule of law. According to the formal definition1 , the rule of law is measured by some objective criteria such as the existence of a set of legislations, the fair execution of law by the executive, the independent and impartial judiciary, etc., and it can be an instrument to be made and used for the promotion of economic transactions and other activities of the people. On the other hand, if we rely on the substantive definition, the rule of law is regarded as the rule of good law which is normatively just and fair (Dworkin 1985). In this sense the rule of law is postulated as the objective to be sought rather than the mere instrument and is valued as such rather than is measured by incidental outcomes. The functional definition of the rule of law focuses on “how well the law and legal system perform some function” such as constraining the government discretion, making legal decisions predictable, etc. (Stephenson 2001b). It seems to be the instrument, but may be the objective depending on the contents and degree of the function to be required. Whatever the definition we will use and whatever the contents we will require of the rule of law, however, it is worthwhile to make clear the causal relationship between the rule of law and economic development. For we must be certain whether and how the rule of law would lead to development before we embark on the rule-of-law project. In this paper various views on the causal interaction between the rule of law and economic