University of Botswana Law Journal - PULP

FOREIGN AID, THE RULE OF LAW AND ECONOMIC DEVELOPMENT IN AFRICA 11
alternatives. Empirical work has found that differences in social, political, and
cultural institutions across countries are among the most important
determinants of differences in economic growth rates. The reason is that
institutions establish the framework for economic activity within a country. 34
As the late economist Mancur Olson explained, economic performance is
determined mostly by the structure of incentives that individuals face when
they make choices. National boundaries create different structures of
incentives, which determine much of the difference in wealth between
countries. 35
Good institutions create an environment that promotes
entrepreneurship, inventiveness, economic growth and development. Some of
the most important of these institutions embody what is known as the Rule of
Law. The consensus among empirical researchers is that the Rule of Law is a
key determinant of economic growth. 36 Since the Rule of Law is a significant
factor in bringing about economic development, understanding what this
entails and how it leads to development is essential for evaluating
development policy.
A. The Meaning of the Rule of Law
In recent years there has been a resurgence of interest in The Rule of Law
among legal scholars, and appeals to the Rule of Law have become frequent in
policy analysis. 37 Despite its popularity as a rhetorical device, however,
invocations of the Rule of Law are typically vague and often contradict one
another. 38 This is probably due to the fact that important scholars have
disagreed over the precise meaning of the phrase “Rule of Law,” so that several
strands of ideas have been subsumed under the same name. 39 Irrespective of
this theoretical dispute, the aspects of the Rule of Law that are important for
development are relatively straightforward.
34 For a discussion of institutional economics by a Nobel Prize winning economist, see D. North,
Institutions, Institutional Change, and Performance (Cambridge University Press, 1990).
35 M. Olson, Jr., Distinguished Lecture on Economics in Government: Big Bills Left on the Sidewalk: Why
Some Nations are Rich and Others are Poor, 10 The Journal of Economic Perspectives 3 (1996).
36 R. J. Barro, Determinants of Economic Growth: A Cross-Country Empirical Study (MIT Press, 1997); R.
J. Barro, Rule of Law, Democracy, and Economic Performance, in G. P. O’Driscoll, K. R. Holmes, M.
Kirkpatick, eds, 2000 Index of Economic Freedom 31 (Heritage Foundation and Dow Jones & Co.,
2000); S.-i-Martin, I Just Ran Two Million Regressions, Amercian Economic Review, 87 (2) (1997). For
a complete survey of studies on the relationship between economic freedom and growth, see N. Berggren,
The Benefits of Economic Freedom: A Survey, 8 Independent Review 193.
37 Cf. T. Carothers, The Rule of Law Revival, Foreign Affairs Mar/Apr 1998, Vol. 77 Issue 2 (“One cannot
get through a foreign policy debate these days without someone proposing the rule of law as a solution to
the world’s troubles.”).
38 Cf G. P. Fletcher, Basic Concepts in Legal Thought 12 (1996) (“(W)e are never really sure what we mean
by the ‘rule of law’.”), cited in R. H. Fallon, Jr., "The Rule of Law" as a Concept in Constitutional
Discourse, 97 Columbia Law Review 1 (1997). In Fallon’s estimation “Invocations of the Rule of Law
are sufficiently meaningful to deserve attention, but today are typically too vague and conclusory to dispel
lingering puzzlement.”
39 See Fallon, note 38 above, who identifies four separate ideal types that underlie different Rule of Law
based arguments.