No law without a state

What explains cross-country differences in the quality of institutions, such as judicial independence and government regulations of economic life, and in desirable social and economic outcomes, such as a low degree of corruption and high degree of rule of law? In some of the most widely cited publications in the field of economics and political science, scholars have claimed that such cross-country variation is explained by a country’s legal origin (common law or civil law tradition). It is claimed that because of stronger legal protection for outside investors and less state intervention, common law countries have achieved higher levels of economy prosperity and social life than civil law countries. To a large extent, this hypothesis has been corroborated by much empirical evidence. This paper proposes an alternative interpretation of the cross-country differences observed. Building on scholarly studies of state formation developments, the basic proposition of this paper is that the state formation process affects the character of the state infrastructure to be either patrimonial or bureaucratic, which in turn affects institutions and social outcomes. We argue that this fundamental distinction of state formation precedes the legal origins of a country and thus offers superior explanatory power. 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).