NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Law and Finance: why Does Legal Origin Matter?

Thorsten Beck, Asli Demirguc-Kunt, Ross Levine

NBER Working Paper No. 9379
Issued in December 2002
NBER Program(s):   IFM   LE

New research suggests that cross-country differences in legal origin help explain differences in financial development. This paper empirically assesses two theories of why legal origin influences financial development. First, the political' channel stresses that (i) legal traditions differ in the priority they give to the rights of individual investors vis-…-vis the state and (ii) this has repercussions for the development of property rights and financial markets. Second, the adaptability' channel holds that (i) legal traditions differ in their ability to adjust to changing commercial circumstances and (ii) legal systems that adapt quickly to minimize the gap between the contracting needs of the economy and the legal system's capabilities will foster financial development more effectively than would more rigid legal traditions. We use historical comparisons and cross-country regressions to assess the validity of these two channels. We find that legal origin matters for financial development because legal traditions differ in their ability to adapt efficiently to evolving economic conditions.

download in pdf format
   (227 K)

email paper

This paper is available as PDF (227 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w9379

Published: Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Law and finance: why does legal origin matter?," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 653-675, December. citation courtesy of

Users who downloaded this paper also downloaded these:
La Porta, Lopez-de-Silanes, Shleifer, and Vishny w5879 Legal Determinants of External Finance
Beck, Demirguc-Kunt, and Levine w10687 Law and Firms' Access to Finance
La Porta, Lopez-de-Silanes, and Shleifer w13608 The Economic Consequences of Legal Origins
La Porta, Lopez-de-Silanes, Shleifer, and Vishny w5661 Law and Finance
Beck, Demirguc-Kunt, and Levine w9089 Law, Endowment, and Finance
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us