Contract Intensive Money

Clague, Christopher and Keefer, Philip and Knack, Stephen and Olson, Mancur (1999): Contract Intensive Money. Published in: Journal of Economic Growth , Vol. 4, No. 2 (June 1999): pp. 185-212.

Abstract

This paper makes two contributions to the literature. First, it introduces a new, easily accessed and objective measure of the enforceability of contracts and the security of property rights. Second, it uses this measure to provide additional and more direct evidence about the importance of secure property and contract rights for economic growth and investment. In the analysis below, we briefly review the arguments that link the quality of third-party contract enforcement to growth and investment. We then show how the new measure, which we call “contract-intensive money” or CIM, relates to the subjective measures employed in the literature. We test empirically the proposition that this variable, as a measure of the security of contract and property rights, is positively related to income, growth and investment.

• Item Type: MPRA Paper
• Language: English
• Keywords: contract enforcement, property rights, governance, growth
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O10 - General; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements

References

Barro, Robert J. (1991). "Economic Growth in a Cross Section of Countries." Quarterly Journal of Economics, 106(2), 407-43.

Barro, Robert J. and Jong Wha Lee (1993). "International Comparisons of Educational Attainment." Journal of Monetary Economics, 32(3), 363 94.

Borner, S., A. Brunetti and B. Weder (1995). Political Credibility and Economic Development, (New York: St. Martin’s Press).

Bruno, Michael and William Easterly (1998). “Inflation Crises and Long-run Growth.” Journal of Monetary Economics. 41(1): 3-26.

Clague, Christopher, Philip Keefer, Stephen Knack and Mancur Olson (1996). "Property and Contract Rights in Autocracies and Democracies." Journal of Economic Growth, 1(2), 243-76.

Cukierman, Alex, and Steven Webb (1995). "Political Influence on the Central Bank: International Evidence." World Bank Economic Review, 9(3), 397-423.

DeLong, J. Bradford and Larry Summers (1991). "Equipment Investment and Economic Growth." Quarterly Journal of Economics, 106(2), 445-502.

Easterly, William (1993). "How Much Do Distortions Affect Growth?" Journal of Monetary Economics, 32(2), 187-212.

The Europa World Yearbook (various years). London: Europa Publications Limited.

Galor, Oded and J. Zeira (1993). “Income Distribution and Macroeconomics.” Review of Economic Studies, 60: 35-52.

Grierson, P.J.H. (1904). The Silent Trade. Edinburgh: William Green and Sons.

Haggard, Stephan, and Robert R. Kaufman (1992). The Politics of Economic Adjustment: International Constraints, Distributive Conflicts, and the State. Princeton, NJ: Princeton University Press.

Hall, Robert, and Charles Jones (1996). "The Productivity of Nations." NBER Working Paper No. 5812.

Hayek, Friedrich A. (1948). "The Meaning of Competition," in his Individualism and Economic Order, Chicago, IL: University of Chicago Press, 92-106.

International Monetary Fund (various issues). International Financial Statistics Yearbook.

Hobbes, Thomas (1958 [1651]). Leviathan. Indianapolis, IN, Bobbs-Merrill.

King, Robert G. and Ross Levine (1993a). "Finance and Growth: Schumpeter Might Be Right." Quarterly Journal of Economics, 108(3), 717-37.

King, Robert G. and Ross Levine(1993b). “Finance, Entrepreneurship and Growth.” Journal of Monetary Economics, 32, 513-42.

Knack, Stephen, and Philip Keefer (1995). "Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Measures." Economics and Politics, 7(3), 207-27.

Knack, Stephen and Philip Keefer (1997). "Does Social Capital Have an Economic Payoff?" Quarterly Journal of Economics. 112 (4).

La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert W. Vishny (forthcoming). "Law and Finance." Journal of Political Economy.

Levine, Ross (1997). “Financial development and economic growth: views and an agenda.” Journal of Economic Literature, 35: 688 – 726 (June).

Levine, Ross (1998). “The Legal Environment, Banks, and Long-Run Economic Growth.” Journal of Money, Credit and Banking, 30: 3 (August, Part 2), 596-613.

Levine, Ross and David Renelt (1992). "A Sensitivity Analysis of Cross-Country Growth Regression." American Economic Review, 82(4), 942-63.

Mauro, Paolo (1995). "Corruption and Growth." Quarterly Journal of Economics, 110(3), 681-712.

North, Douglass C. (1990). Institutions, Institutional Change, and Economic Performance. Cambridge and New York: Cambridge University Press.

Olson, Mancur (1992). "The Hidden Path to a Successful Economy," in The Emergence of Market Economies in Eastern Europe. Ed. Christopher Clague and Gordon Rausser. Cambridge, MA & Oxford, Blackwell, 55-76.

Olson, Mancur (1993). "Dictatorship, Democracy and Development." American Political Science Review, 87(3), 567-76.

Olson, Mancur (1996). "Big Bills Left on the Sidewalk: Why some Nations Are Rich, and Others Poor." Journal of Economic Perspectives, 10(2), 3-24.

Pritchett, Lant (1996). "Where Has All the Education Gone?" Policy Research Working Paper no. 1581, The World Bank.

Rosenberg, Nathan and L. E. Birdzell (1986). How the West Grew Rich: The Economic Transformation of the Industrial World. New York: Basic Books.

Scully, Gerald W. (1988). "The Institutional Framework and Economic Development." Journal of Political Economy, 96(3), 652-62.

Summers, Robert and Alan Heston (1991). "The Penn World Table (Mark V): An Expanded Set of International Comparisons, 1950-88." Quarterly Journal of Economics, 106(2), 327-68.

Townsend, Robert M. (1983). "Financial Structure and Economic Activity." American Economic Review, 73(5), 895-911.

Williamson, Oliver (1983). "Credible Commitments: Using Hostages to Support Exchange." American Economic Review, 73(4), 519-40.

Williamson, Oliver (1985). The Economic Institutions of Capitalism. New York: The Free Press.