Legal Reforms and Economic Performance : Revisiting the Evidence
This paper investigates whether legal reforms intended to create a market-friendly regulatory business environment have a positive impact on economic and financial outcomes. After conducting a critical review of the legal origins literature, the au...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2017
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/214381487758903991/revisiting-the-evidence http://hdl.handle.net/10986/26213 |
| Summary: | This paper investigates whether legal
reforms intended to create a market-friendly regulatory
business environment have a positive impact on economic and
financial outcomes. After conducting a critical review of
the legal origins literature, the authors first analyze the
evolution of legal rules and regulations during the last
decade (2006-2014). For that purpose, the authors use
legal/regulatory indicators from the Doing Business Project
(World Bank). The authors findings indicate that countries
have actively reformed their legal systems during this
period, particularly French civil law countries. A process
of convergence in the evolution of legal rules and
regulations is observed: countries starting in 2006 in a
lower position have improved more than countries with better
initial scores. Also, French civil law countries have
reformed their legal systems to a larger extent than common
law countries and, consequently, have improved more in the
majority of the Doing Business indicators used. Second, the
authors estimate fixed-effects panel regressions to analyze
the relationship between changes in legal rules and
regulations and changes in the real economy. The authors
findings point to a lack of systematic effects of legal
rules and regulations on economic and financial outcomes.
This result stands in contrast to the widespread belief that
reforms aiming to strengthen investor and creditor rights
(and other market-friendly policies) systematically lead to
better economic and financial outcomes. It seems that
improvements in these legal rules are not sufficient
conditions for that. Finally, the authors conduct an
exploratory analysis of the determinants of the
effectiveness of legal reforms and the gap between legal
rules and the reality on the ground. |
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