Legal process and economic development: a case study of Indonesia

Cheryl W. Gray

No 350, Policy Research Working Paper Series from The World Bank

Abstract: Westeners often complain that laws are not enforced in developing countries."Good"laws are on the books, but in reality individuals and firms evade them with impunity. For example taxes are uncollected, bankruptcy laws unenforced, environmental controls ignored and trade restrictions evaded. Furthermore, corruption often flourishes in government despite repeated condemnation by public leaders. This paper tries to unravel the nature of legal processes in developing countries and explain how and why they may differ from legal processes in more advanced nations. It identifies three broad functions of a legal system and introduces the central theme of the paper - how risk and information costs affect many of the characteristics of the legal process. Next, it proposes two opposing models, the formal and informal, to illustrate different means by which legal functions can be handled. While these models are presented as contrasting alternatives for purposes of exposition, neither pure prototype exists in practice. Real life is always some mixture of the two, with the balance shifting from country to country. The paper then describes formal and informal legal processes in Indonesia, using the Indonesian tax system as a case study.

Keywords: National Governance; Environmental Economics&Policies; Legal Products; Health Economics&Finance; Insurance&Risk Mitigation (search for similar items in EconPapers)
Date: 1989-12-31
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