Rule of law is good for growth - but hard to prove

The relationship between the rule of law and economic growth is more complex than widely assumed, new research suggests. A literature review, commissioned by the Bingham Centre for the Rule of Law and the Law Society, finds widespread agreement that robust legal institutions are good for growth. However the search for a cause remains elusive. 

According to the Rule of Law and the Institutional Roots of Economic Performance, while the rule of law's relationship with growth and economic performance is 'undeniable and well-documented, its impact often goes beyond a simple direct effect'.

A glaring outlier, the report suggests, is China: a country that has achieved 20-fold economic growth since the mid-1990s against a rule of law which 'remains far from the benchmarks achieved by leading Western economies'. One explanation could be the effect of technological progress, the report suggests. 

The authors conclude that the relationship between the rule of law and economic performance is bidirectional, 'economic growth can both result from and reinforce legal quality'. Another factor may be the level of development: 'In less developed countries, the positive effects of the rule of law tend to be stronger'; in advanced economies it is 'more of a stabilising factor'.

'Ultimately, the rule of law is both a driver of economic performance and a reflection of collective social commitment to fairness, predicatbility and cooperation, forming a cornerstone of sustained prosperity.'