The Rule-of-Law Capital, Growth, and Development

Qixin Zhan, Junzhu Zhao () and Heng-Fu Zou ()
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Junzhu Zhao: China Economics and Management Academy, Central University of Finance and Economics

No 624, CEMA Working Papers from China Economics and Management Academy, Central University of Finance and Economics

Abstract: This paper studies the intricate relationship between investments in the rule-of-law capital and phys- ical production capital within a dynamic model of optimal growth and development. It highlights the mutual influence between institutional changes, such as those in the rule of law, property rights, and legislation systems, and economic performance over time and across different nations. Notably, it sheds light on how the escalating expenses associated with upholding the rule of law, coupled with the swift erosion of rule-of-law capital, can impede long-term economic growth and development. Conversely, the escalating costs and rapid depreciation of physical capital accumulation can significantly undermine the rule of law. In particular, overlegislation is harmful for both the rule of law and economic development. By elucidating these dynamics, this paper offers insights into the complex interplay between legal institutions and economic prosperity.

Pages: 37 pages
Date: 2024-03-20
New Economics Papers: this item is included in nep-gro
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