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The Rule-of-Law Capital,Growth, and Development

Author

Listed:
  • Qixin Zhan

    (School of Economics, Shandong Technology and Business University, Yantai, 264005, China)

  • Junzhu Zhao

    (China Economics and Management Academy, Central University of Finance and Economics, Beijing, 100081, China)

  • Heng-Fu Zou

    (The World Bank, Washington, D. C. 20433, USA
    Institute for Advanced Study, Wuhan University, Wuhan, 430072, China
    Institute for Advanced Study, Shenzhen University, Shenzhen, 518060, China)

Abstract

This paper studies the intricate relationship between investments in the rule-of-law capital and physical production capital within a dynamic model of optimal growth and development. It highlights the mutual influence between institutional changes, such as those in the rule of law, property rights, and legislation systems, and economic performance over time and across different nations. Notably, it sheds light on how the escalating expenses associated with upholding the rule of law, coupled with the swift erosion of rule-of-law capital, can impede long-term economic growth and development. Conversely, the escalating costs and rapid depreciation of physical capital accumulation can significantly undermine the rule of law. In particular, overlegislation is harmful for both the rule of law and economic development. By elucidating these dynamics, this paper offers insights into the complex interplay between legal institutions and economic prosperity.

Suggested Citation

  • Qixin Zhan & Junzhu Zhao & Heng-Fu Zou, 2025. "The Rule-of-Law Capital,Growth, and Development," Annals of Economics and Finance, Society for AEF, vol. 26(2), pages 667-705, November.
    • Handle: RePEc:cuf:journl:y:2025:v:26:i:2:zhanzhaozou
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    References listed on IDEAS

    as
    1. Heng-fu Zou, 2025. "Institution-Based Asset Pricing: A Generalization of Consumption- and Production-Based Models," CEMA Working Papers 765, China Economics and Management Academy, Central University of Finance and Economics.
    2. Heng-Fu Zou, 2025. "Liberal Ideas and the Great Enrichment: A Theoretical Model," Annals of Economics and Finance, Society for AEF, vol. 26(1), pages 1-175, May.
    3. repec:cuf:journl:y:2025:v:26:i:1:liangzou is not listed on IDEAS
    4. Qixin Zhan & Heng-Fu Zou, 2025. "The Right to Bear Arms, Private Property, and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 26(1), pages 281-309, May.
    5. Hayek, F. A., 2022. "Law, Legislation, and Liberty, Volume 19," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226781815 edited by Shearmur, Jeremy.
    6. Heng-fu Zou, 2024. "Institutions Are a State of Mind," CEMA Working Papers 679, China Economics and Management Academy, Central University of Finance and Economics.
    7. Minxian Sun & Heng-Fu Zou, 2025. "A Macroeconomic Model with Property-Rights Capital," Annals of Economics and Finance, Society for AEF, vol. 26(1), pages 213-246, May.
    8. Wei Liang & Heng-fu Zou, 2024. "Endogenous Constitutional Democracy Capital and Economic Development," Annals of Economics and Finance, Society for AEF, vol. 25(2), pages 501-549, November.
    9. Heng-fu Zou, 2025. "Institutional Volatility and the Equity Premium Puzzle: A Dynamic Asset Pricing Framework for OECD Economies," CEMA Working Papers 775, China Economics and Management Academy, Central University of Finance and Economics.
    10. Friedman, Milton & Appelbaum, Binyamin, 2020. "Capitalism and Freedom," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226734798.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Heng-fu Zou, 2025. "Institution-Based Asset Pricing: A Generalization of Consumption- and Production-Based Models," CEMA Working Papers 765, China Economics and Management Academy, Central University of Finance and Economics.
    2. Heng-Fu Zou, 2025. "Liberal Ideas and the Great Enrichment: A Theoretical Model," Annals of Economics and Finance, Society for AEF, vol. 26(1), pages 1-175, May.
    3. Heng-fu Zou, 2025. "Institutional Volatility and the Equity Premium Puzzle: A Dynamic Asset Pricing Framework for OECD Economies," CEMA Working Papers 775, China Economics and Management Academy, Central University of Finance and Economics.

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    Keywords

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    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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