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

Li, Rita Yi Man and Li, Yi Lut (2013) The relationship between law and economic growth: A paradox in China Cities, Asian Social Science, Vol.9, No.9, pp.19-30

12 Pages Posted: 9 Jul 2013  

Rita Yi Man Li

Hong Kong Shue Yan University

Yi Lut Li

City University of Hong Kong (CityUHK)

Date Written: July 6, 2013

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.

Keywords: Economic growth, law, China

JEL Classification: N15, K40, K42, O10

Suggested Citation

Li, Rita Yi Man and Li, Yi Lut, Is There a Positive Relationship between Law and Economic Growth? A Paradox in China (July 6, 2013). Li, Rita Yi Man and Li, Yi Lut (2013) The relationship between law and economic growth: A paradox in China Cities, Asian Social Science, Vol.9, No.9, pp.19-30 . Available at SSRN: https://ssrn.com/abstract=2290481

Rita Yi Man Li (Contact Author)

Hong Kong Shue Yan University ( email )

10 Wai Tsui Crescent
Braemar Hill Road
North Point
Hong Kong

Yi Lut Li

City University of Hong Kong (CityUHK) ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Register to save articles to
your library

Register

Paper statistics

Downloads
156
rank
176,088
Abstract Views
2,792
PlumX