Contracts Do Matter: Robust Evidence of an Optimal Level of Legal Formalism in Developing Countries

Alan Green

Journal of Development Studies, 2017, vol. 53, issue 10, 1663-1678

Abstract: This paper asks: ‘how do institutions impact household wealth?’ This question is the micro level analogue to the macro question: ‘how do institutions impact economic growth?’ Institutions are exogenous to household decisions, allowing for quasi-experimental analysis of this micro question. Results shed light on a continuing puzzle: contracting institutions have typically been found to be insignificant empirically. Estimates show a strong quadratic effect of legal formalism on household wealth. Household analysis also shows smaller impacts of property rights than found in the literature. Results are robust to inclusion of controls for other institutions, geography, economic indicators, historical factors and democracy.

Date: 2017
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DOI: 10.1080/00220388.2016.1251585

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