Among economists, the core theoretical mechanism linking law to economic development runs through property rights and contract enforcement (Alchian, 1965; Alchian & Demsetz,
1973; Coase, 1960; Demsetz, 1967; Williamson, 1971, 1985; for reviews and syntheses, see Asoni, 2008; Barzel, 1997; Furubotn & Pejovich, 1972; on the so-called new economic history see
Dam, 2007; Haber, Razo, & Maurer, 2003; North 1981, 1990; North & Thomas, 1973).
The law-growth nexus: The rule of law and economic development
There is a direct lineage from this earlier work to the strand of new growth theory that focuses on the
role of institutions (Acemoglu, Johnson, & Robinson, 2001; Acemoglu, Johnson, & Robinson, 2005; Easterly & Levine,2003; Rodrik, Subramanian, & Trebbi, 2002).
The link from property rights to growth runs through the incentives individuals have to invest and trade when such rights are secure. The capacity to contract is equally fundamental. Some trade can take place in the form of barter or “spot” exchanges but more complex inter-temporal transactions,
including financial ones, require the ability to make and receive promises about future actions (Djankov, La Porta, Lopez-de-Silanes, & Shleifer, 2002; La Porta, Lopez-de-Silanes, Shleifer, & Vishny, 1998).
The empirical literature is relatively easy to summarize as there are few dissenters. A broad literature has found that more robust property rights protection is associated with better long-run economic performance (Asoni, 2008; Barro, 1997; Clague, Keefer, Knack, & Olson, 1996; Keefer, 2007; Keefer & Knack, 2002, 1995; Scully, 1988; Zak & Knack, 2001; for micro level studies, see Alston & Schneider, 1996; Anderson & Hill, 1975; Bazzi, & Clemens 2009; Libecap, 1989; Kaufmann,
2004; Malesky & Taussig, 2008).
In the new literature on institutions and long-run growth, either the conception of institutions
or the proxy for them is the extent of property rights protection; similarly, these institutions are found significant for long-run economic performance (e.g., Acemoglu & Johnson, 2005; Acemoglu et al., 2001).