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Advanced Introduction to Law and Development

Michael J. Trebilcock and Mariana Mota Prado

This book offers a concise and accessible introduction to the main themes and debates in the field of law and development. It unpacks the role of legal systems and institutions, and investigates what kinds of law and legal arrangements are perceived (correctly or not) to encourage and facilitate development.
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3 Institutional theories of development

Michael J. Trebilcock and Mariana Mota Prado

Extract

Beginning in the early 1990s, an institutional perspective on development has become increasingly prominent in development thinking, captured in the mantra “institutions matter”, or “governance matters”. This perspective views the quality of a country’s domestic institutions as a major determinant of its development prospects.

The idea that institutions matter for development has both a theoretical and empirical genesis. The theoretical genesis of institutionally focused development theories is based on a number of assumptions and arguments developed by a school of thought called the New Institutional Economics (NIE). The basic assumption of NIE is that people are rational actors who respond to incentives, and these incentives are influenced, if not determined, by institutions that induce individuals and organizations to engage in productive activities – or the converse. According to Douglass North, one of the pioneers of the field of NIE, “the institutional framework dictates the kinds of skills and knowledge perceived to have the maximum pay-off…If the institutional matrix rewards piracy (or more generally redistributive activities) more than productive activity, then learning will take the form of learning to be better pirates”.1 The empirical genesis or support for institutional theories of development is predominantly based on cross-country quantitative studies that show strong correlations between institutional quality and growth and development around the world. Some studies make the stronger claim that empirical evidence also supports causation from institutional quality to development.

The institutional perspective on development is, at least superficially, compelling because it appears to identify important...

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