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Developing commercial law in transition economies : examples from Hungary and Russia

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  • Gray, Cheryl W.
  • Hendley, Kathryn
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    Abstract

    Implementing decentralized legal frameworks requires reasonable laws, adequate institutions, and market-oriented incentives. All three must exist together. In transition economies, not only must new laws be drafted but they must be accompanied by the growth of supportive institutions. And they must be accompanied by economic reforms - whether privatization or banking reforms - that separate actors from the state and reinforce market-based incentives. The authors of this paper use two case studies - Hungarian bankruptcy law and Russian company law - to illustrate the interaction of these three elements in practice. These cases illustrate their general view that Central Europe is somewhat further along on all three dimensions than Russia. As for incentives, in both countries relevant actors exert weaker demand for proper implementation of thelaws on the books than one would expect in more mature market economies. The cases belie any simplistic notion that the rule of law can be mechanically dictated from above. Top-down reform of bankruptcy law in Hungary appears to have been at least marginally successful in changing expectations and behavior, partly because it stimulated the growth of new supporting institutions. Finally, top-down reform of company law in Russia has had little impact to date on either institutional development or firm behavior.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1528.

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    Date of creation: 30 Nov 1995
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    Handle: RePEc:wbk:wbrwps:1528

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    Keywords: Legal Institutions of the Market Economy; Legal Products; Environmental Economics&Policies; Banks&Banking Reform; Judicial System Reform; Legal Products; Banks&Banking Reform; Environmental Economics&Policies; National Governance; Legal Institutions of the Market Economy;

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    1. Milan Vodopivec, 1994. "Appropriability of Returns in the Yugoslav Firm," Eastern Economic Journal, Eastern Economic Association, Eastern Economic Association, vol. 20(3), pages 337-348, Summer.
    2. Maxim Boycko & Andrei Shleifer & Robert W. Vishny, 1993. "Privatizing Russia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 139-192.
    3. Gray, C.W., 1993. "Evolving Legal Frameworks for Private Sector Development in Central and Eastern Europe," World Bank - Discussion Papers, World Bank 209, World Bank.
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