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The Standardization Of Law And Its Effect On Developing Economies

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  • Katharina PISTOR

Abstract

A widely used tool in law and development programmes is the supply of well-designed laws from the outside. This method of law development has now been embraced by international organizations as a way to improve the legal framework for global markets. The International Monetary Fund (IMF) has endorsed attempts by various organizations to develop legal standards with special emphasis on corporate and financial institution laws. The common idea behind these attempts is that the supplied laws once incorporated into domestic legal systems will improve the existing legal framework, and thus further economic development. This paper takes issue with this concept of law development. It argues that for developing effective legal systems, the contents of the supplied laws is of only secondary importance to the process of law development and the compatibility of the new laws with pre-existing conditions, including existing legislation and legal institutions. Three factors account for this: (i) only a few rules are freestanding, i.e. can be fully understood and enforced without reference to other legal terms and concepts; (ii) law is a cognitive institution, and the application and enforcement of rules is determined by the perception of new rules by users and enforcers in the receiving country; and (iii) effective law enforcement is a function of the extent of voluntary compliance and available resources in a given country. A closer analysis of the rules whose standardization is currently proposed for building an international financial architecture shows that the implementation of these standards and their effectuation will require more efforts by the law receiving countries than underwriting them, if the goals of standardizing the law are to be achieved. The paper discusses the implications for countries wishing to attract foreign investments by adopting the new standards, and makes some proposals for creating more effective legal systems in the area of financial law.

Suggested Citation

  • Katharina PISTOR, 2000. "The Standardization Of Law And Its Effect On Developing Economies," G-24 Discussion Papers 4, United Nations Conference on Trade and Development.
  • Handle: RePEc:unc:g24pap:4
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    1. Berkowitz, Daniel & Pistor, Katharina & Richard, Jean-Francois, 2003. "Economic development, legality, and the transplant effect," European Economic Review, Elsevier, vol. 47(1), pages 165-195, February.
    2. Haizhou Huang & Chenggang Xu, 1999. "Financial Institutions, Financial Contagion, and Financial Crises," CID Working Papers 21, Center for International Development at Harvard University.
    3. Katharina Pistor, 2000. "Patterns of legal change: shareholder and creditor rights in transition economies," Working Papers 49, European Bank for Reconstruction and Development, Office of the Chief Economist.
    4. Levine, Ross, 1998. "The Legal Environment, Banks, and Long-Run Economic Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 596-613, August.
    5. Roberta Romano, 1998. "Empowering Investors: A Market Approach to Securities Regulation," Yale School of Management Working Papers ysm74, Yale School of Management.
    6. Haizhou Huang & Chenggang Xu, 1999. "Financial Institutions, Financial Contagion, and Financial Crises," CID Working Papers 21A, Center for International Development at Harvard University.
    7. Erik BERGLÖF & Ernst-Ludwig VON THADDEN, 1999. "The Changing Corporate Governance Paradigm : Implications for Transition and Developing Countries," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9912, Université de Lausanne, Faculté des HEC, DEEP.
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    Cited by:

    1. Sharun W. Mukand & Dani Rodrik, 2005. "In Search of the Holy Grail: Policy Convergence, Experimentation, and Economic Performance," American Economic Review, American Economic Association, vol. 95(1), pages 374-383, March.
    2. Mariano Tommasi, 2003. "Crises, institutions politiques et réformes politiques : le bon, le mauvais et l'affreux," Revue d’économie du développement, De Boeck Université, vol. 11(2), pages 49-81.
    3. Mariano Tommasi & Pablo T. Spiller & Ernesto Stein, 2003. "Political Institutions, Policymaking Processes, and Policy Outcomes. An Intertemporal Transactions Framework," Working Papers 59, Universidad de San Andres, Departamento de Economia, revised Jul 2003.
    4. Mariano Tommasi, 2002. "Crisis, Political Institutions and Policy Reform: It Is Not the Policy, It Is the Polity, Stupid," Working Papers 49, Universidad de San Andres, Departamento de Economia, revised Jun 2004.
    5. Dani Rodrik, 2011. "The future of economic convergence," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 13-52.
    6. Rodrik, Dani, 2005. "Growth Strategies," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 14, pages 967-1014 Elsevier.
    7. Dani Rodrik, 2000. "Trade Policy Reform as Institutional Reform," IDB Publications (Working Papers) 2189, Inter-American Development Bank.
    8. Pedro Bernal & Sebastian Martinez & Pablo Celhay, 2018. "Is Results-Based Aid More Effective than Conventional Aid?: Evidence from the Health Sector in El Salvador," IDB Publications (Working Papers) 8750, Inter-American Development Bank.
    9. Schleyer, Christian & Theesfeld, Insa & Hagedorn, Konrad & Aznar, Olivier & Callois, Jean-Marc & Verburg, Rene & Yelkouni, Martin & Olsson, Johanna Alkan, 2007. "Approach towards an operational tool to apply institutional analysis for the assessment of policy feasibility within SEAMLESS-IF," Reports 9295, SEAMLESS: System for Environmental and Agricultural Modelling, Linking European Science and Society.
    10. Benu Schneider, 2005. "Do Global Standards And Codes Prevent Financial Crises? Some Proposals On Modifying The Standards-Based Approach," UNCTAD Discussion Papers 177, United Nations Conference on Trade and Development.

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