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The Role of Law in China's Economic Development

Author

Listed:
  • Donald Clarke
  • Peter Murrell

    () (Department of Economics, University of Maryland)

  • Susan Whiting

Abstract

This paper surveys China's legal system in the economic reform era. We analyze the role of law in the economy, assessing whether China's formal legal system contributed to those expectations of stable and predictable rights of property and contract that are prerequisites for growth. The paper begins by detailing legal developments. The relationship between legal and economic development was bidirectional - a coevolutionary process. We then examine three spheres of activity - property rights, agreements to trade, and corporate governance - asking whether law plays an important role, how that role has changed, and what the current problems are. Common themes arise. First, there have been profound changes, with law playing an increasingly important role. Second, formal legal institutions have not made a critical contribution to China's remarkable economic success. This latter conclusion leaves open the question of which mechanisms generated the necessary expectations of reasonable returns from decentralized economic activity. We briefly reflect on mechanisms other than law that might have produced such expectations, for example, the role of local Communist Party officials. However, lack of empirical information suggests this is a topic for future research.

Suggested Citation

  • Donald Clarke & Peter Murrell & Susan Whiting, 2006. "The Role of Law in China's Economic Development," Electronic Working Papers 06-002, University of Maryland, Department of Economics.
  • Handle: RePEc:umd:umdeco:06-002
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    Citations

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    Cited by:

    1. L. Alan Winters & Shahid Yusuf, 2007. "Dancing with the Giants: China, India, and the Global Economy," World Bank Publications, The World Bank, number 6632, October.
    2. Wu, W. & Johan, S.A. & Rui, O.M., 2012. "Institutional investors, political connections and incidence of corporate fraud," Discussion Paper 2012-042, Tilburg University, Tilburg Law and Economic Center.
    3. Thomas S. Ulen, 2011. "The Uneasy Case for Competition Law and Regulation as Decisive Factors in Development: Some Lessons for China," Chapters,in: Competition Policy and Regulation, chapter 2 Edward Elgar Publishing.
    4. Chenggang Xu, 2011. "The Fundamental Institutions of China's Reforms and Development," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 1076-1151, December.
    5. Linda Yueh, 2010. "The Economy of China," Books, Edward Elgar Publishing, number 3705.

    More about this item

    Keywords

    China; institutions; law; property rights; contracts; corporate governance;

    JEL classification:

    • P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General
    • P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy
    • P30 - Economic Systems - - Socialist Institutions and Their Transitions - - - General
    • P37 - Economic Systems - - Socialist Institutions and Their Transitions - - - Legal
    • N45 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Asia including Middle East
    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact

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