Is There a Positive Relationship between Law and Economic Growth? A Paradox in China

Abstract

Traditional theorists concur that good legal system has been linked with well-defined property rights, reduction in transactions costs, increase in investments, and economic growth. Nevertheless, China experienced a strong economic growth in spite of a poor legal system. To explore the reasons behind, this research paper reviews the literature about the relationship between law and economic growth from global perspective. After that, this paper tries to locate the reasons on why the formal rules and regulations may not have strong correlation with China’s growth. The research concludes that while many people label Guanxi as something negative, Guanxi is an informal system of legal rules from a Western perspective, or de facto, China’s style of legal enforcement. Nevertheless, as the Chinese economy grows, transaction costs may become too high if we rely on guanxi and good legal system is needed to ensure a sustainable economic growth

Asean Law And Economic Growth Asean

“…The voting theory by Buchanan and Tullock states that there is a direct relationship between the desire for voting efficiency and costs, where we want efficient voting, namely satisfying everyone, then the cost required is greater, on the contrary, if the voting results are only to satisfy one person only. (king or dictator), the voting costs issued are also very low (Man Li & Li, 2013). These results are in line with previous research conducted by Moricz & Sjöholm (2014) and Wibowo (2013), which states that no matter how much citizen participation in choosing parties and leaders, as well as freedom of opinion, freedom of association, and freedom to determine public policy, it does not affect economic growth.…”