Rule of Law and Growth

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From the course by Universiteit Leiden

Political Economy of Institutions and Development

114 ratings

Universiteit Leiden

Political Economy of Institutions and Development

114 ratings

This course is part of the SDG initiative <http://www.sdginitiative.org/> addressing the UN Sustainable Development Goals, specifically for the following SDGs [1, 8, 10 and 16]. We hope you will join in our efforts to reach the SDG’s in small but measurable and actionable ways, cooperating with Development Done Differently. Expand your impact. You can create a better world. In today’s world, politics and economics are interconnected, but what is the nature of this connectivity? What are the power relationships that shape the world economy today and create new challenges for international institutions facing globalization? What makes some countries wealthier than others? Do we face cultural diversity or fragmentation? Does the type of governance effect economic development and social change or is it the other way around? How do we measure it and how trustworthy is the data? These issues and many more will be examined in this course along with a wide library of sources and a biting criticism.

From the lesson

Governance

Governance. Argues that good governance provides a transparent and stable environment for risk assessment and decision-making and contributes to welfare and growth. The question is how to get it.

Good Governance7:40

Measuring Governance7:13

Democracy and Growth7:51

Visualization: World Map of Democracy2:42

Rule of Law and Growth5:41

Visualization: World Map of Rule of Law2:59

Corruption and Growth8:30

Visualization: World Map of Corruption2:15

Meet the Instructors

Richard Thomas Griffiths
Prof. dr.
Faculty of Humanities

Hi there, in the previous video,

we analyzed the powers by which democracy could be expected to influence growth.

But we saw that the statistical verification was weak.

In this video, we'll do the same for the rule of law,

and we'll see how the rule of law fits into our expectations on economic growth.

The very first point to note, however, is the World Bank indicator for

the rule of law is not actually about the rule of law as most of us would define it.

It does not measure human rights.

It says nothing about the independence of the judiciary or

the principle of equality before the law.

It says nothing about the right to a fair trial and

fair punishment, and it does not imply that all citizens are treated equally.

It's all about economic rights, about contract and property rights, and

the World Bank makes no secret about this.

And all the sources and all the questions are biased in that direction.

And as we saw in the last video,

the World Bank is committed to promoting market-led economic growth.

And it's constructed an index that answers this particular need.

My complaint's not about the construction of the indicator but about the labeling.

It would have avoided a lot of confusion if the index had been labelled

differently.

Call it the rule of economic law, for example.

So if we want an index for the rule of law, as we understand it,

we have to look elsewhere.

Now this gap can be filled by the World Justice Project,

an independent group of lawyers founded in the United States in 2006.

And it publishes its own annual Rule of Law Index.

The index, again,

is a composite one, based on eight separate elements weighted equally.

To be honest, just as the World Bank Voice and Accountability indicator we reviewed

in the last video, this index is a little too comprehensive for its own good.

Half of the index includes what we'd happily understand under the rule of law.

Limitations on government powers, fundamental rights,

access to civic justice, and an effective criminal justice system.

But the other half of the index lumps together items considered separately by

the World Bank Governance Indicators.

Order and security, open government, the absence of corruption, and

effective regulation.

The index mixes results from its own opinion polls with expert polling,

both of which are conducted on an impressively large scale,

but the results are only available for 99 countries.

Well, the final results of both indicators are available then

in a separate visualization you can look at after this video.

So why should the good observation of the rule of law promote economic growth?

Well, the logic starts with what is often the most difficult point,

an independent judiciary.

The appointment of judges should be transparent, and, at least,

not too biased by political preference.

If the judiciary's not independent or neutral, the rest quickly becomes a sham.

Now in turn, the independent judiciary ensures that legal institutions function

efficiently and effectively, and this also applies to the economic sector.

So we'd expect all the benefits to flow that arise from the protection of property

rights and contract that we reviewed in the last video.

And there's a third link that's been suggested, and

that runs directly through foreign investment.

Foreigners, especially, like transparent and predictable judicial systems.

It removes one source of uncertainty in their projections into the future.

And it encourages them to invest more and

earlier than they would have otherwise have done.

And finally, there is a feedback link through levels of trust, especially if you

believe that constantly observing the efficient management and judicial

affairs socializes people into more trusting modes of thought and behavior.

The question now arises, does any of this work?

Can social scientists demonstrate any relationship between the rule of law and

economic growth?

And the answer is, well, yes and no.

One study did suggest there seemed to be a link between a narrow business

interpretation of the rule of law and economic performance in poorer countries.

And the link between economic performance in a wider interpretation of law

in more developed countries.

But the authors themselves warned that the results were extremely sensitive

to the time periods and the countries included.

Well, no surprise in that.

For the most part, however, the links are weak or nonexistent.

As usual, we can look for

the faults, firstly, in the immediate rule of law indicator.

Do they capture everything?

Are they too amorphous?

Do they ignore the local level where they do?

We can also ask, is economic growth too complex?

And we could also look at the data that they use, the data that they're focusing

their attention on, the poorer countries on the planet.

Social scientists tend to ignore the fact that the data is suspect.

Economic growth data, and that's the poor current data with the even more suspect

earlier data, is even more suspect than the rest.

So let's sum up them.

In this video, we've seen how the World Bank looked at the indicators for

the rule of law and we've looked at alternative indicators.

And we've seen how the rule of law could be expected to influence growth.

Well, not surprisingly, we saw that statistical link was weak.

In the next video, we're going to do the same for the control of corruption.

In the meantime, we'd like you to have a look at a visualization of the world map

of the rule of law that we've prepared for you.

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