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

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  • Alan Green

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.

Suggested Citation

  • Alan Green, 2017. "Contracts Do Matter: Robust Evidence of an Optimal Level of Legal Formalism in Developing Countries," Journal of Development Studies, Taylor & Francis Journals, vol. 53(10), pages 1663-1678, October.
    • Handle: RePEc:taf:jdevst:v:53:y:2017:i:10:p:1663-1678
    DOI: 10.1080/00220388.2016.1251585
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    References listed on IDEAS

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    1. Kevin K. Tsui, 2011. "More Oil, Less Democracy: Evidence from Worldwide Crude Oil Discoveries," Economic Journal, Royal Economic Society, vol. 121(551), pages 89-115, March.
    2. Collier, Paul, 2008. "The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It," OUP Catalogue, Oxford University Press, number 9780195374636, Decembrie.
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