Law and Economic Growth

It is widely acknowledged that law affects the economic growth. Good law improves it and bad law prevents growth. In an interesting talk in College of Law at UIUC, Bob Cooter from UC Berkeley elaborated more on this subject. He said in different stages of economic growth, similar to different stages of the growth of a firm, different resources provide the necessary investment. So the type of law differs in these stages.

In the early stages of growth, investment is based on the money of family and friends (relational, he calls). In this stage property law should be developed well to help the transactions. In the second stage the money comes form banks and other financial sources (a small group with ability to evaluate the profitability of a project; private according to the authors). So in this stage it is the contract law that fosters the growth. In the last stage, the money comes from the public through stock market and so. In this stage the business law should be developed to help financing the projects.

The talk covered a few chapters of a new book by Cooter and Schaefer. It should be interesting. The primary name is Law and Poverty of Nations.