Law and Finance c. 1900
How persistent are the effects of legal institutions adopted or inherited in the distant past? A substantial literature argues that legal origins have persistent effects that explain clear differences in investor protections and financial development around the world today (La Porta et al, 1998, 1999 and passim). This paper examines the persistence of the effects of legal origins by examining new estimates of different indicators of financial development in more than 20 countries in 1900 and 1913. The evidence presented does not yield robust results that can sustain the hypothesis of persistence effects of legal origin, but it is not powerful enough to reject it either. Then the paper examines if there were systematic differences in the extent of investor protections across countries, since that is the main channel through which legal origin affects financial development, and shows that all the evidence supports the idea of relative convergence in corporate governance practices across legal families circa 1900. The paper concludes that, if the evidence presented is representative, the variation observed in financial development around the world today is likely a product of events of the twentieth century rather than a consequence of long-term (and persistent) differences occasioned by legal traditions.
The author would like to thank for their comments and suggestions Stefano Battilossi, Dan Bogart, Mike Bordo, Les Hannah, Pierre-Cyrille Hautcoeur, Lakshmi Iyer, Noel Maurer, Mary O'Sullivan, Hugh Rockoff, Dick Sylla, Gail Triner, Eugene White, and seminar participants at Universidad Carlos III, in Madrid, ITAM, Mexico City, Rutgers, and of the panel "The Micro-structure, Regulation and Development of Stock Markets Around The World" in the XVth World Economic History Conference, Utrecht, 2009. Les Hannah, Noel Maurer, and Lyndon Moore shared their data with me and helped me to compile some of the data presented in this paper. Thanks to Elisabeth Koll for her help with Chinese laws. Research assistance for this project was ably provided by Claire Gilbert and Jonathan Selter. All errors are the responsibility of the author. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.