The Role of Law in China's Economic Development

Donald Clarke, Peter Murrell and Susan Whiting

Electronic Working Papers from University of Maryland, Department of Economics

Abstract: This paper surveys China's legal system in the economic reform era. We analyze the role of law in the economy, assessing whether China's formal legal system contributed to those expectations of stable and predictable rights of property and contract that are prerequisites for growth. The paper begins by detailing legal developments. The relationship between legal and economic development was bidirectional - a coevolutionary process. We then examine three spheres of activity - property rights, agreements to trade, and corporate governance - asking whether law plays an important role, how that role has changed, and what the current problems are. Common themes arise. First, there have been profound changes, with law playing an increasingly important role. Second, formal legal institutions have not made a critical contribution to China's remarkable economic success. This latter conclusion leaves open the question of which mechanisms generated the necessary expectations of reasonable returns from decentralized economic activity. We briefly reflect on mechanisms other than law that might have produced such expectations, for example, the role of local Communist Party officials. However, lack of empirical information suggests this is a topic for future research.

Keywords: China; institutions; law; property rights; contracts; corporate governance (search for similar items in EconPapers)
JEL-codes: D02 K00 K20 K40 N45 P20 P26 P30 P37 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2006-02
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Citations: View citations in EconPapers (6)

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