The Other Roles of Law: Signaling, Self-Commitment and Coordination

Abstract

The existing literature on the role of formal law in economic development mainly focuses on the protective function of law. The dominant position of law and development scholars with expertise in Chinese law or economy downplays the role of formal law in China’s economic development. This article, however, demonstrates that there is still inadequate evidence to support this position. In addition to pointing out that there might be a role for formal law in China’s economic development with respect to the enforcement of contracts and the protection of property rights, this article analyses the other roles of law. They include signaling, self-commitment, and coordination. These roles of formal law have varying degrees of impact in different countries depending upon their political economy. More importantly, it is the law that defines the role of the state or government in economic development. This article rejects the position that there is a role of the government in owning or managing SOEs or TVEs in China except for a period under distorted economic conditions. The role of the state, instead, should be in the provision of public goods including law. When the state moves in this direction, our research agenda will not only focus on the role of law in economic development but also emphasize development as freedom.