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Financial Crisis as a Catalyst of Legal Reforms : The Case of Asia

Author

Listed:
  • Masahiro Kawai

    (Asian Development Bank Institute (ADBI))

  • Henrik Schmiegelow

Abstract

This paper discusses how financial crises in emerging Asia and Japan worked as catalysts for legal reforms. The responses of six Asian countries with different legal histories to financial crises that posed similar challenges are of both legal and economic interest. We first provide a theoretical framework that focuses on law and economics. We then review the basic approaches adopted by the Asian countries affected by financial crises in 1997–1998 to bank and corporate restructuring and to legal and other reforms. Finally we examine indicators that measure the quality of legal institutions (regulatory quality, rule of law, and control of corruption) for the six countries to determine whether these indicators show improvement over time. We find that all six countries pursued significant legal and judicial reforms, but the indicators exhibit mixed results : the Republic of Korea shows clear improvements in all aspects, while the Philippines exhibits clear deterioration and Indonesia indicates a steep decline followed by remarkable improvement. We argue that reforms of the economic laws alone cannot improve the quality of entire legal and judicial systems of countries. What matters is the enforcement of substantive law by procedural law, the efficiency of the justice system, and other political and social factors. In the case of Indonesia, Malaysia, and the Philippines, the colonial “transplant effect†of Western legal systems may have made the implementation of laws a significant challenge. In Thailand, implementation was affected by the “yellow shirts†(anti-Thaksin) versus “red shirts†(pro-Thaksin) conflict. Long time lags, perhaps of several decades, may be needed to observe how de jure changes to substantive laws lead to de facto improvements of legal institutions.

Suggested Citation

  • Masahiro Kawai & Henrik Schmiegelow, 2013. "Financial Crisis as a Catalyst of Legal Reforms : The Case of Asia," Governance Working Papers 23852, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:govern:23852
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    References listed on IDEAS

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    1. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 222-279, April.
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    Keywords

    Financial crises; legal reforms; Japan; emerging Asia; the quality of legal institutions; regulatory quality; rule of law; and control of corruption`;

    JEL classification:

    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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