The Rule of Law: A Critical Building Block for Good Governance and Economic Growth

The rule of law plays a critical role in the functioning of a well-governed, stable country. Not only does it help to provide transparent and accountable governance and protection of minority and human rights, it is also necessary to create the conditions for private sector-led growth, job creation, and attracting foreign investment. It should come as no surprise that five of the eleven indicators used by the World Bank in its annual Doing Business report are related to the strength of legal institutions; without strong, impartial legal institutions and respect for the rule of law, private sector actors—local and foreign—cannot make the investments needed to grow economies and create employment opportunities.1 Rule of law, though, remains an area of limited investment by donors. Part of this stems from an overall lack of attention on good governance, but it also comes from a sense that genuine reform requires significant involvement in local politics, which is something that many donors have traditionally sought to avoid. 

There does, however, seem to be a window of opportunity to reexamine good governance and, by extension, the rule of law. Since the adoption of the Sustainable Development Goals (SDGs) in 2015, there have been several shifts that have created such an opening. First, the SDGs included Goal 16: Peace and Security that explicitly endorsed the need for good governance, rule of law, and strong institutions. SDG 16 represents a strong commitment on the part of the international community to supporting the creation of transparent and accountable governing institutions. Second, the 2015 Financing for Development conference held in Addis Ababa elevated the importance of domestic resource mobilization and private sector investment in creating sustainable sources of development finance.2 While strong rule of law is not sufficient on its own to mobilize these two pools of capital, it is necessary to ensure that countries can effectively utilize their own resources and investors can commit private capital securely. Third, USAID has launched a new policy framework called the Journey to Self-Reliance, which seeks to move developing countries along a path toward sustainability and off foreign assistance.3 Critical to USAID’s Journey to Self-Reliance is a country’s commitment and capacity—two areas that will require significant strengthening of governance and rule of law.

This report is made possible by the generous support of Chevron.