Role of Law in Business Development

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Fordham International Law Journal
Volume 20, Issue 5 1996 Article 6

The Role of Law in Business Development
Ibrahim F.I. Shihata∗



Copyright c 1996 by the authors. Fordham International Law Journal is produced by The Berkeley Electronic Press (bepress). http://ir.lawnet.fordham.edu/ilj

The Role of Law in Business Development
Ibrahim F.I. Shihata

Abstract
Part I of this Essay concerns the law of developing nations as it effects business growth. Part II describes the legal framework needed in developing nations. Part III talks about the legislative policies that should be adopted. Part IV is about the role of the World Bank in developing nations.

THE ROLE OF LAW IN BUSINESS DEVELOPMENT*
Ibrahim F.L Shihata*** INTRODUCTION As we approach the new century, our world is increasingly described as a global village and our times as the post-geography era. Political boundaries are becoming less of a barrier in the face of the explosive growth of global investment and trade. Almost a hundred investment laws and over a thousand bilateral investment treaties have extended to foreign investors, legal treatment equal, or similar to, that enjoyed by local investors. The right to national treatment is progressively finding its way to becoming part of customary international law. In these circumstances, it is no longer appropriate to speak of the need for a separate legal framework for international business distinct from that applicable to domestic business. What is needed is a legal framework that allows private business, regardless of whether it is domestic or foreign, to grow and prosper. I. LAW AND DEVELOPMENT I began working on development issues over thirty years ago. Ever since then, it has been clear to me that law plays a key role in the business development process in general and a pivotal role in the growth of private business in particular. Since the late 1960s, I have tried to articulate this role in my writings in a continued effort to enhance awareness of its relevance and importance. This, in fact, explains my association with the efforts which led to the establishment of the International Development Law Institute ("IDLI") in 1983 and my close association with that endeavor since that time. In all countries, law, which is often used to maintain the * Based on a lecture delivered at the International Development Law Institute ("IDLI") in Rome, Italy, on December 13, 1996. ** Senior Vice President and General Counsel, World Bank; Secretary-General, International Centre for Settlement of Investment Disputes; Chairman of the Board, International Development Law Institute. The views expressed in this paper are the personal views of the author and should not be attributed to the institutions he works for.

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status quo, has also had an essential role in guiding and legitimizing the processes of change. It is the instrument for introducing orderly development and reconciling diverse interests. It took civil strife and economic failures in Africa, the collapse of dictatorships in Latin America, and, particularly, the transformation of Eastern and Central Europe, however, to bring this simple fact to the forefront of present-day development discussions. As developing and transition countries began to move en masse towards market economies, they adopted strategies for the encouragement of local and foreign private investment. There is ample evidence that the establishment of the rule of law1 attracts private investment, to the extent that it creates a climate of stability and predictability, where business risks may be rationally assessed, property rights protected, and contractual obligations honored. More generally, experience supports the proposition that the rule of law is needed to give credibility to commitments on the part of the governments, and reliability and enforceability to applicable rules. This, in turn, leads to lower...
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