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The demand for law from another country helps explain why law works in one situation but not another.
 

There have been two major phases of the transplantation of law (that is, law from one country applied in a different country). The first occurred when European law was exported across the globe during the period of European colonization and imperialism. The second occurred after the fall of communism in Eastern Europe in the 1990s.

Two Phases of Research

There have also been two phases of research on the transplantation of law. Scholars Daniel Berkowitz, Katharina Pistor and Jean-Francois Richard say that the first wave of research on transplanting law was largely a failure. Scholars were at a loss, say the authors, to come up with an adequate explanation for why the formal law of a "donor" country was effective in one transplant country (the country receiving the law) while ineffective in another transplant country.

With the fall of communism, Western law began to be used as a replacement for the defunct law of former communist countries. This practical need motivated the second phase of research and theory on the transplantation of law. For very practical reasons, it became critical that there exist a robust explanation of the relationship between transplanting law and such things as legal effectiveness and economic development. In other words, if the goal was to bring legal stability and economic development to Eastern Europe by importing Western law, then it was critical to understand the conditions under which the transplantation of law would "work."

The problem, say the authors, is that if the first attempts to explain legal transplantation did not work well, then what would provide any confidence that the second wave would fare any better?

Effective Law

Scholarship in law and economic development distinguishes between “law on the books” and "law in practice." For instance, a country's legal code might provide substantial protection for investors. However, whether or not investors are actually afforded protection in practice depends on whether the formal legal code is enforced. The authors argue that two criteria indicate when a transplanted legal code is effective:

  1. Law does what it is supposed to do in practice (for example, investors are actually protected by the laws written to protect them),
  2. Legal intermediaries (like judges, lawyers and legislators) are responsive to the demand for effective law.

But, what explains why transplanted law sometimes functions well and why it sometimes does not? How should we understand the relationship between law on the books and the way that law is enforced? What does the extensiveness and effectiveness of law have to do with economic growth?

Problems with Previous Explanations

Early research on law and economic development suggested that formal law had little relation to the effectiveness of legal institutions in countries where law had been transplanted. However, more recent research indicates that the relationship between formal law and effective legal institutions depends on the “legal family” of the transplanted law. In other words, some legal families tend to be more successful in linking formal law to effective enforcement than other families.

Legal families are legal traditions that share a common country of origin (for example England, France or Germany), a common way of systematizing law and a common style of codifying the law. There are four major legal families:

  • English common law,
  • French civil law,
  • German civil law,
  • Scandinavian civil law.

In contrast to earlier research, law on the books does impact the effectiveness of legal institutions, but legal family must be taken into account. For instance:

  • Countries belonging to the English common law family have the most investor-friendly laws,
  • French and German civil law countries have the least investor-friendly laws,
  • The Scandinavian families fall somewhere between.

However, in terms of enforcement, German and Scandinavian civil law countries dominate English common law countries, which, in turn, perform better than French civil law countries.

So, the legal family is implicated in the relationship between the type of law on the books and the effectiveness of the law and, finally, the relationship between formal law and economic development.

Missing Pieces

However, questions remain. Prior explanations of the relationship between law on the books and economic development could not explain contradictions in their findings. Legal families could not completely explain legality. For instance:

  • Why was French law more effectively transplanted in Argentina than Brazil?
  • Why was German law transplanted more effectively in Japan than in South Korea or Taiwan?
  • Why was Australia more receptive to English law than was Zimbabwe?

What still needed to be explained was the relationship between law on the books, the effectiveness of legal institutions and the relationship between economic growth. Legal family plays into this string of relationships, but there were some missing pieces.

The Transplantation Effect

A key deficit in the earlier research was that it did not consider the fit between the law of the origin countries and situation of the receiving countries.

Because the body of law developed in the origin countries over a long period of time, the nature of the law dovetailed with social conditions and institutions of these countries. In short, within legal families there is a “fit” between law on the books and the social context in the countries where the legal family originated. Because formal law within the origin countries developed out of informal social norms and regulations, there was a natural demand for the law.

However, when laws from the origin countries were transplanted into other countries they did not always fit with the indigenous society. There was not always a demand for the formal law adopted by (or imposed on) the country receiving the law. Also, without a demand to enforce the “foreign” law, legal intermediaries (for example, judges and lawyers) had few resources to develop the law fit their situation. Legal intermediaries might interpret and enforce the formal law in inconsistent ways–if they enforced them at all.

It is the demand for the foreign law that affects how effective the law will be in practice. When there is no demand for the foreign law in the receiving country, the transplanted law will be ineffective. This is known as the “transplant effect.” So, the legality (effectiveness) of formal law depends not simply on the legal family, but also on the demand for the new law in the new social context.

What Determines Demand for New Law?

If the effectiveness of transplanted law depends on indigenous demand, how is this demand created? There is a higher demand for a transplanted law when the country is more receptive to the new law.

Two circumstances influence the degree to which a country is receptive to the new law:

  1. The level of familiarity a country has with the legal tradition of the origin county,
  2. The degree to which a country adapts the law of the origin country to meet their local needs.

When either or both of the above conditions are in place, a country is more receptive to the new law. If the country is more receptive, then there will be higher demand. If there is higher demand, then law on the books will be more effective in practice.

Bottom Line

With the fall of communism and the pressing need for economic growth in Eastern Europe, it is critical that we have a clear understanding of the ways in which laws are transplanted between countries. We need to understand the conditions under which formal law transplanted from one country to another will be effective and how the effectiveness of the transplanted law may relate to economic growth.

While using the concept of legal families to understand this complex set of relationships is helpful, legal family does not explain everything. A legal family may be more effective in one country than another.

The transplant effect adds to our ability to explain why some legal families “work” better in some contexts than others.

 
Data and Methods:

Data Source:

Survey data from a previously existing database measuring the effectiveness of the judiciary, rule of law, the absence of corruption, low risk of contract repudiation and low risk of government expropriation observed during 1980-1995.

Data Analysis:

Unrestricted regression analysis.

Measure of legality was derived from a principle components analysis of the covariance matrix for the five observed legality variables.

 

 
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Reference

Berkowitz, David, Katharina Pistor, and Jean-Francois Richard. 2003. "The Transplant Effect." The American Journal of Comparative Law 51:163-203.

 
 
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