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


  • Gray, Cheryl W.
  • Hendley, Kathryn


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.

Suggested Citation

  • Gray, Cheryl W. & Hendley, Kathryn, 1995. "Developing commercial law in transition economies : examples from Hungary and Russia," Policy Research Working Paper Series 1528, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1528

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    References listed on IDEAS

    1. János Kornai, 2014. "The soft budget constraint," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 64(supplemen), pages 25-79, November.
    2. Boycko, Maxim & Shleifer, Andrei & Vishny, Robert W., 1997. "Privatizing Russia," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522284, January.
    3. Milan Vodopivec, 1994. "Appropriability of Returns in the Yugoslav Firm," Eastern Economic Journal, Eastern Economic Association, vol. 20(3), pages 337-348, Summer.
    4. Gray, C.W., 1993. "Evolving Legal Frameworks for Private Sector Development in Central and Eastern Europe," World Bank - Discussion Papers 209, World Bank.
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    Cited by:

    1. John Humphrey & Hubert Schmitz, 1998. "Trust and inter-firm relations in developing and transition economies," Journal of Development Studies, Taylor & Francis Journals, vol. 34(4), pages 32-61.


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