Most IFCs’ legal systems are based on English common law. As a result, IFCs have legal sectors, judiciaries, and law enforcement authorities that are robust and reliable.
In order to be successful, IFCs must have high-quality legal institutions that can be trusted by investors to be fair and impartial and can be relied on by regulators to be rigorous and transparent. It’s these legal and financial institutions that give IFCs their credibility and encourage people to do business there.
IFCs have legal systems that specialise in relevant areas of law, particularly relating to trusts, funds, insurance, and corporate vehicles. This specialism creates certainty and thus lower risks and costs.
This is particularly important when it comes to developing countries. Most investment into developing and emerging markets, such as China and India, is through IFCs. Those destination countries often have weaker protections for investors, unfamiliar laws and processes, and a lack of professional expertise in complex legal cases.
Investment through IFCs matches up high-quality legal institutions in IFCs with the investment opportunities in emerging economies: boosting development. This facilitates investment that might otherwise not occur.
Table 2: Top ten FDI sources to China 2007
Source: National Bureau of Statistics of China, China Statistical Yearbook, Beijing, China; Statistics Press