Legal environment & economic

Páginas: 15 (3518 palabras) Publicado: 7 de diciembre de 2010

As the world advances to a new era where technology facilitates the communication between its countries, we see that doing business with other countries has become easier. Through the Internet as an example, we can access any kind of trade, good or service around the world and also “with digitisation and high-speed data networks, business is able to tap into talent no matterwhere it is located in the global economy"(Sloman & Sutcliffe, 2004). When multinational firms are planning to invest in other country, they have to look at the economic, cultural, political and legal environments of the host nation. In our study we are going to talk about the legal environment of developed and developing countries to compare the characteristics that are attractive for doingbusiness.
When we talk about legal environments conducive to economic development, we consider rules that deal with: enforcements of contracts, security of property rights, transparency guidelines and sanctions, employment practices, investment of capital, tax polices and so on, as well as the institutions who are in charge of regulating these practices. “It has been shown that a weak legalsystem can undercut efforts to develop a modern, market oriented economy” (Gray, 1997). But what is the relationship between legal and economic systems? As we will show, they are linked in such a way that, “when a country has a well-functioning legal system for a market economy they have a set of written laws that clearly delineate individual rights and responsibilities” (Gray, 1997). This set ofwritten laws is what we often call "the rule-of-law". The legal process is important in the developing of a strong and reliable economy and for most multinational firms it is an indicator of how they are going to do business in the other country. “To get a single rule-of-law score for a country, we can added together this five goods: 1) Government bound by law, 2) Equality before the law, 3) Law andOrder, 4) Predictable and efficient government and 5) Human rights” (Kleinfeld, 2005). The rule-of-law is viewed as an important component of free markets. The European Union, for instance, requires the existence of these laws in order to negotiate access to it.
Developed countries have commons denominators in their legislatives policies that have created a good and safe economicenvironment for multinational firms. One of these denominators is that they have adopted a legal institution based in the common-law-tradition and, “some studies suggested that this countries have experienced faster growth than countries that have drawn on civil law systems” (La Porta & Al, 1997, 1998; Mahoney, 2001). For these reasons, in order to help developing countries become attractive formultinational firms, international organizations, like the International Monetary Fund, the World Bank, the World Trade Organization and the United Nations are joined in order to bring assistance to least developed countries to improve their legislatives polices, the accessibility of their markets and to assist with technology.
Now we are going to describe in more detail what characteristics fromdeveloped countries make them very attractive for foreign direct investment.


Glenn Hubbard, Chairman of the Council of Economic Advisors for JP Morgan states that “the structure of an economy, including the institutional and legal framework that support markets, is the key influence on productivity and thus on the sustainable rate of economicgrowth” (Hubbard, 2002). The American market based system provides great incentives to entrepreneurship and risk taking while remaining flexible and conducive to business, however, the system is certainly not flawless. This section will examine the legal framework in the United States, showing both the positive and negative sides of the American legal system regarding economic development....
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