Economic Development, Legality and the Transplant Effect

This paper analyzes the determinants of effective legal institutions (legality) and their impact on economic development today using data from 49 countries. We show that the way the law was initially transplanted and received is a more important determinant than the supply of law from a particular legal family (i.e. English, French, German, or Scandinavian). Countries that have developed legal orders internally, adapted the transplanted law to local conditions, and/or had a population that was already familiar with basic legal principles of the transplanted law have more effective legality than ”transplant effect” countries that received foreign law without any similar pre-dispositions. Controlling for the supply of legal families, we find that legality is roughly one third lower in transplant effect countries. While the transplant effect has no direct impact on economic development, it has a strong indirect effect via its impact on legality. The strong path dependence between economic development, legality and the transplant effect helps explain why legal technical assistance projects that focus primarily on improving the laws on the books frequently have so little impact. Finally, our statistical methodology produces a legality index based on observed legality proxies that almost fully captures their interaction with the way in which the law was transplanted, the supply of particular legal families and economic development. *We would like to than Jan Kleinheisterkamp (Max Planck Institute, Hamburg), for his help with background information on Latin America and the coding of these countries. We are also grateful to the comments of seminar participants at the World Bank and the University of Wisconsin-Madison.