No Law without a State

Abstract

There is a large and growing interest in the prevailing cross-country differences many well-functioning institutions, such as judicial independence and high quality laws, and desirable social outcomes, such as a low degree of corruption and high economic growth. Influential scholars have claimed that these cross-country differences to a large extent are explained by a country’s legal origin (the common law and civil law tradition). It is claimed that through mechanisms of a stronger legal protection of outside investors and less state intervention, common law countries have developed more prosperous economically and socially. This paper proposes an alternative interpretation of the cross-country differences observed. Building on scholarly studies of state formation processes, the basic proposition of this paper is that state formation decisively affects the character of the state infrastructure to be either patrimonial or bureaucratic, which in turn affects institutions and social outcomes. This argument is tested empirically on a set of 31 OECD countries. It is shown that the state infrastructure is indeed more influential than the legal traditions on a set of institutional variables (formalism, judicial independence, regulation of entry and case law) as well as on a set of social outcomes (corruption, rule of law, and property rights).