Legal Systems: Necessary for Financial Stability & Economic Growth - Essay Sample

Introduction

For a country to involve itself in laws that could govern their finances, there must have been decisions made on whether it should be easier for people to walk away from their obligation such as payments and management of debts. Thus, in such cases, the creditors will only walk into a financial relationship when the legal systems do not make it easier for the debtors to walk away from their obligations. Economic growth requires the country to have legal systems which are not too taxing on the debtors. The legal systems must be developed in consideration of rights of the borrowers as well as the lenders (Png, 2017). For this reason, it is always complex to come up with a sound legal system to support the existing financial markets.

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The existing legal systems ought to ensure that the contract, as well as the property rights, are predictable and sufficient. In cases of dispute, the individuals in the agreement need not take legal actions before exhausting the available options. However, if there is litigation, the independent courts should be tasked with undertaking such issues and see it through to its resolution within the specified periods. For the delivered judgments, there is always a greater need for quick enforcement.

Economic growth is fundamental to every country and the world at large. The growth of the economy directly translates to the increase in the gross domestic product, which influences the national output, national income, and total expenditures. When the economy of a given country grows, the citizens directly benefit through improved living standards and effective service delivery by the government. Countries with are said to have grown economically boast of reduced poverty, reduced unemployment rates, reduced debts, and improved public service.

However, most countries tend to suffer from slow economic growth. The existing literature suggests that the slow pace of financial development experienced by these countries is often due to sluggish nature of their civil courts which results into issues such debts and unresolved issues which are not common in the advanced countries. For the developed countries with the efficient legal systems, cases related to the economy has a time frame within which they ought to be resolved, and failure to do so often results in huge penalties (Rostow & Rostow, 1990). Countries such as the United States which have led in the financial markets for decades have put in place measures to standardize their legal norms as well as systems surpassing the competing nations from Europe which have faced various challenges in the fragmentation of the existing regulations, legislation, and enforcement.

Having a proper legal system in place is vital as it facilitates the grade in the global market. The lack of a proper legal system may result in the rise of yield with falls in the asset prices (Hicks & LaFaive, 2013). Asset yields often incorporate the legal risk, which is part of the operation risk implying its serious nature as considered by the legislators. In cases of the inefficient legal system within a country, businesses often find it hard to operate, thus propelling them to move elsewhere. These movements by the businesses always have enormous effects on the quality of their services as well as their products rather than their prices.

There have been serious debates across the globe revolving around the legal environment. Reports such as the Bloomberg-Schumer reported on the importance of the legal environments in the determination of the competitiveness of the financial centers. Thus, an effective legal system must not comprise of several restrictive rules but instead should comprise of a lighter approach that focuses on the importance of competitive abilities of the financial centers. However, the balance between the two approaches is not always easy to find in a country which is growing economically. Over the past period, the global market has seen the emergence of more structured products which separates the creditors from the debtors using complex financial infrastructures with the ability to transform as well as repackage the underlying assets (Acs & Szerb, 2007). Despite these plausible advancements in the market, the systems pause a significant threat which may lead to a legal challenge which might turn out to bring turmoil in the market. Legal matters are vital in the national arena and need to go hand in hand with transparency. With these complex financial systems in place, there arises a greater need for transparency and supervisory considering the attention they have received.

Nonetheless, using advanced modes of study, links can be established between these mostly used financial systems and the development of the economic growth of any given country. The arising ambiguous relationship can be used in the formulation of favorable laws to regulate the key players in the economy of the country. These systems also have direct links with the ICT proxies which have direct effects of the growth of the economy. The underlying ICT policies may also be used in determining the growth regression of a given country.

References

Acs, Z. J. & Szerb, L. (2007). Entrepreneurship, economic growth, and public policy. Small business economics, 28(2-3), 109-122.

Hicks, M., & LaFaive, M. (2013). Economic growth and right-to-work laws. Mackinac Center for Public Policy, 157.

Png, I. P. (2017). Law and innovation: evidence from state trade secrets laws. Review of Economics and statistics, 99(1), 167-179.

Rostow, W. W., & Rostow, W. W. (1990). The stages of economic growth: A non-communist manifesto. Cambridge university press.