On Heaven’s Lathe: State, Rule of Law, and Economic Development

Chen Ding () and Deakin Simon ()
Additional contact information
Chen Ding: School of Law, University of Newcastle, Newcastle, UK
Deakin Simon: CBR, University of Cambridge, Judge Business School, Trumpington Street, Cambridge CB1, 3DB, UK

The Law and Development Review, 2015, vol. 8, issue 1, 123-145

Abstract: We propose a theoretical framework for understanding the evolution of the rule of law state, which is conceived as the equilibrium of a societal game in which actors accept the legitimacy of publicly enunciated legal rules. A meta-norm of respect for the sovereign legal power of the state is not self-forming on the basis of private conduct, but requires the coevolution of impersonal market exchange with effective state capacity to constitute and regulate markets. A functioning legal system must acquire the means not just to control private power but to constrain other organs of government. The emergence of such a ‘self-limiting state’ is an historical process which, while complementary to a market order, is also contingent and path-dependent, and is not preordained. Illustrating our argument with empirical evidence drawn from the contemporary experience of middle-income countries, with a focus on China, we argue that alternatives to the rule of law state, including interpersonal trust, closed networks and authoritarian political control, can only achieve limited scale and scope effects, and are prone to high deadweight costs arising from corruption and the capture of the public sphere by private interests. We also discuss the potential of transplants of legal rules and institutions to catalyse the transition to impersonal trade based on the rule of law, and present evidence, from time-series econometric analysis, that the diffusion of shareholder protection laws has the potential to support financial development in emerging markets. Evolution towards the rule of law state is, we conclude, one possible developmental path for middle-income countries.

Keywords: rule of law; economic development; emerging markets; China; guanxi (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://doi.org/10.1515/ldr-2014-0031 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:lawdev:v:8:y:2015:i:1:p:123-145:n:3

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/ldr/html

DOI: 10.1515/ldr-2014-0031

Access Statistics for this article

The Law and Development Review is currently edited by Yong-Shik Lee

More articles in The Law and Development Review from De Gruyter
Bibliographic data for series maintained by Peter Golla ().