Does the Rule of Law Matter?

John Hewko

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In this paper, John Hewko analyzes the relationship of foreign direct investment and the rule of law. He takes a hard look at what has become a familiar article of common wisdom in international aid circles: the proposition that developing and transitional countries must establish a well-functioning rule of law to attract foreign direct investment. Hewko argues that the philisophical framework the international devleopment community has traditionally used to carry out its legislative and institutional reform efforts in the post-communist countries of Eastern Europe and the former Soviet Union is incomplete and has failed to take into account several critical concepts and factors. He also explores the other, less-accepted side of the causal chain: the ways in which foreign investment can stimulate positive change in the rule of law.

The paper is the first in a new series commissioned by the Endowment's Democracy and Rule of Law Project to provide thoughtful, practical and challenging analyses of some of the key questions in the field of rule-of-law and foreign investment.

About the Author

John Hewko is a visiting scholar in the Democracy and Rule of Law Project. His research focuses on rule-of-law issues relating to post-communist transitions, including the role of foreign investment in facilitating legal reform, macro versus micro reform issues, and the impact of rule-of-law aid programs. Hewko is a partner in the law firm of Baker & McKenzie, and has spent the past 12 years practicing law in Moscow, Kiev, and, most recently, Prague.

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