The Law-Growth Nexus

Kenneth Dam, The Law-Growth Nexus: The Rule of Law and Economic Development. Brookings, 2006.

Kenneth Dam has always been interested in rules and institutions and how they condition outcomes. The Rules of the Game: Reform and Evolution in the International Monetary System (1982) examined the structure and performance of the Bretton Woods system of international finance. The Rules of the Global Game: A New Look at US International Policymaking, (2001) provided fresh insights into US foreign economic policies in many areas, how and why they have come to take their present form and what effects these choices produce.

The current book is a serious and comprehensive study of how and why legal institutions and the “rules of the game” they create can foster or inhibit economic growth. Dam provides a critical examination of the literature regarding the rule of law issue and applies this analysis to a number of key sectors, including especially land use and equity and credit market finance. In a final chapter, Dam addresses the issue of China: If strong legal institutions are necessary for economic growth, how can a country that has weak rule-of-law achieve such exceptional growth rates? Excellent bibliography.

I loved Hernando DeSoto's The Mystery of Capital, but was frustrated with its lack of analytical detail and policy specifics. This book provides what DeSoto's book lacked. A great addition to the development economics literature.