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Report No. 253 (i) Economic growth 3.2.1 The importance of a stable, efficient and certain dispute resolution mechanism to the growth and development of trade and commerce is well established. Quick enforcement of contracts, easy recovery of monetary claims and award of just compensation for damages suffered are absolutely critical to encourage investment and economic activity, which necessarily involves the taking of financial and enforcement risks. A stable, certain and efficient dispute resolution mechanism is therefore essential to the economic development of any nation. 3.2.2 Where the legal institutions such as the Judiciary are not effective, an improvement in substantive law may make very little difference. Studying the transition countries of Eastern and South-Eastern Europe and the former Soviet Union, it was found that despite the substantial changes in the corporate and bankruptcy laws during the period from 1992 to 1998, there was remarkable improvement in financial markets only in those countries where the legal institutions became more effective.36 36. Katharine Pistor, Martin Raiser and Stanislaw Gelfer, Law and Finance in Transition Economies, 8(2) ECONOMICS OF TRANSITION 325 (2000). 3.2.3 Finally, slow or over-burdened judicial systems hamper growth by fostering an inefficient use of (time and monetary) resources and technology; increasing transaction costs such as enforcement costs or delays; and moving countries away from their best possible output. When contract and property rights are not properly enforced, firms may decide not to pursue certain activities, foregoing the opportunity to specialise and exploit economies of scale; and not allocating their production among clients and markets in the most efficient fashion, thus keep resources unemployed.    |
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