When Does Legal Origin Matter?
AbstractA vast literature documents better economic institutions in common law compared with civil law countries. The present paper argues that legal origin alone is insufficient to explain differences in the quality of economic institutions across countries. Rather, it is the interaction between legal origin and the quality of political institutions that is important. Empirical evidence from a cross-section of 90 countries on entry regulation, a measure of how business friendly economic institutions are towards firms, strongly supports our claim. For example, we find that the number of procedures required to start a business are lower in common law compared with civil law countries by 2.5 procedures or 24.3% of the sample mean. However, this difference varies sharply across the sample of countries with high and low levels of political accountability. It equals a large 3.4 procedures (37% of the sample mean) for the former and a mere 1.1 procedures (9.7% of the sample mean) for the latter. We conclude that legal origin matters for the quality of economic institutions but only when political accountability is high. We provide a plausible explanation for this phenomenon based on recent findings in the literature on political economy.
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Bibliographic InfoPaper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 080912.
Length: 41 pages
Date of creation: Dec 2008
Date of revision:
Legal origin; Regulation; Political institutions;
Find related papers by JEL classification:
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
- K2 - Law and Economics - - Regulation and Business Law
- P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
- P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-12-14 (All new papers)
- NEP-LAW-2008-12-14 (Law & Economics)
- NEP-POL-2008-12-14 (Positive Political Economics)
- NEP-REG-2008-12-14 (Regulation)
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