Rule of Law and Credibility: Lessons for the Forgetful
Glenna Sumner, Y. Paul Huo

Although the institution of Rule of Law (ROL) and its counterpart, Control of Corruption (COC), are well known in economic development literature as being essential to economic growth and investment, policy makers in developed countries may be unaware of, or may have forgotten the lessons learned in the developing world. In this paper we argue that countries in different stages of development may seek to increase credibility and reduce uncertainty associated with economic transactions through either ROL or COC. Some developing economies, such as China, have achieved impressive economic growth through COC without relying on ROL. In the long run, however, all nations have to move toward the establishment of a ROL based economy. We demonstrate mathematically that lack of certainty, due to a lack of rule of law, the presence of corruption, or a lack of credibility of government, can increase the rent-seeking expenditures and thereby have a damaging effect on economic growth. Such evidence reconfirms the value of rule of law in safeguarding sustainable path of economic growth.

Full Text: PDF     DOI: 10.15640/jppg.v2n3-4a2