The Use of International Indices - Measuring Legal Systems and Assessing Risk of Investment in Central and Eastern Europe

Lőrincz, Viktor and Jakab, András (2019) The Use of International Indices - Measuring Legal Systems and Assessing Risk of Investment in Central and Eastern Europe. China Belt and Road Initiative Journal: Research Analysis and Perspectives, 2 (1). pp. 89-103. ISSN 2515-9402

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Abstract

The role of credit rating agencies in the decision on investment is well-known. These ratings also include a judgement on the legal system of a given country, but there are further relevant international indices on the legal system too. Measuring the law is a rather complicated task: in order to represent the complexity of the law by simple numbers, we have to follow numerous steps from the conceptualisation (resolving also the problem of translation across legal cultures) to the aggregation and representation of data. We also discuss the attempts of manipulation by the States in Central and Eastern Europe. We present several international indices focusing on the indicators relevant from the point of view of investment, and how these indicators can predict obstacles. We also discuss actual scores of Central and Eastern European countries on these indicators. We present locally constructed indices made sometimes by the given State itself, and we examine how the 2008 financial crisis impacted the measurement during the last decade. We discuss the problem of the allegedly US-oriented characteristic of the international indices, and we also answer the critique on the business-friendly specificities. We present the newest development in the field: the use of indices for comparative legal purposes, discussing the numerous limitations of the method. Then we focus on the grouping legal systems into families or circles, based on indicators, as a powerful tool for a decision on investment. Our paper also analyses the incorporation of further indices on corporate culture, leadership style etc. into the model. By presenting possible sanctions in the future, linked to the indices in the European Union, we reach a conclusion, where we sum up the recent empirical research of our institution with the Hungarian Constitutional Court, where we found evidence that some data on the legal system follows a special distribution, and therefore we must be cautious when using them in different models.

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