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Law,Finance, Economic Growth and Welfare: Why Does Legal Origin Matter?

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  • Simplice A. Asongu

    (African Governance and Development Institute, Yaoundé, Cameroon)

Abstract

This paper proposes four theories on why legal origin influences growth and welfare through finance. This article provides empirical validation on these theories. It is a natural extension of “Law and finance: why does legal origin matter?” by Thorsten Beck, Asli Demirgüç-Kunt and Ross Levine (2003). We find only partial support for the Mundell (1972), La Porta et al. (1998) and Beck et al. (2003) hypotheses that countries which have adopted or adapted the British common law system (a British colonial legacy) tend to have better developed financial intermediaries than countries which adopted the French legal system or civil law. Common law systems have evolved over the ages and are largely based on consensus and precedent while civil law systems are largely based on a code of law. Countries with English legal tradition have legal systems that improve financial depth, activity and size while countries which apply French legal system or an adaptation of it overwhelmingly dominate in financial intermediary allocation efficiency. Countries which practise Portuguese legal system fall in-between.

Suggested Citation

  • Simplice A. Asongu, 2015. "Law,Finance, Economic Growth and Welfare: Why Does Legal Origin Matter?," Institutions and Economies (formerly known as International Journal of Institutions and Economies), Faculty of Economics and Administration, University of Malaya, vol. 7(2), pages 30-55, July.
    • Handle: RePEc:umk:journl:v:7:y:2015:i:2:p:30-55
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    File URL: http://ijie.um.edu.my/filebank/published_article/10296/Law,Finance,%20Economic%20Growth%20and%20Welfare%20-%20Why%20Does%20Legal%20Origin%20Matter.pdf
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    Keywords

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    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • K2 - Law and Economics - - Regulation and Business Law
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • P5 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems

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