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Law, finance, economic growth and welfare: why does legal origin matter?

  • Asongu Simplice



This paper proposes and empirically validates four theories of why legal origin influences growth and welfare through finance. 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 English common-law countries tend to have better developed financial intermediaries than French civil-law countries. While countries with English legal tradition have legal systems that improve financial depth, activity and size, countries with French legal origin overwhelmingly dominate in financial intermediary allocation efficiency. Countries with Portuguese legal origin fall in-between.

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Paper provided by African Governance and Development Institute. in its series Working Papers with number 11/007.

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Length: 26
Date of creation: 18 Aug 2011
Date of revision:
Publication status: Forthcoming in Institutions and Economies
Handle: RePEc:agd:wpaper:11/007
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  1. Levine, Ross & Zervos, Sara, 1996. "Stock markets, banks, and economic growth," Policy Research Working Paper Series 1690, The World Bank.
  2. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2002. "Law and finance : why does legal origin matter?," Policy Research Working Paper Series 2904, The World Bank.
  3. Asongu Simplice, 2012. "Real and Monetary Policy Convergence: EMU Crisis to the CFA Zone," Working Papers 12/033, African Governance and Development Institute..
  4. Raghuram G. Rajan & Luigi Zingales, . "Financial Dependence and Growth," CRSP working papers 344, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  5. Asongu Simplice, 2012. "Are Proposed African Monetary Unions Optimal Currency Areas? Real, Monetary and Fiscal Policy Convergence Analysis," Working Papers 12/006, African Governance and Development Institute..
  6. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, . "Investor Protection and Corporate Governance," Working Paper 19455, Harvard University OpenScholar.
  7. Jith Jayaratne & Philip E. Strahan, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 639-670.
  8. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
  9. Simplice A. ASONGU, 2011. "Why Do French Civil–Law Countries Have Higher Levels Of Financial Efficiency?," Journal of Advanced Research in Law and Economics, ASERS Publishing, vol. 0(2), pages 94-108, December.
  10. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  11. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
  12. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 222-79, April.
  13. Daniel Berkowitz & Katharina Pistor & Jean-Francois Richard, 2000. "Economic Development, Legality, and the Transplant Effect," CID Working Papers 39, Center for International Development at Harvard University.
  14. Simplice A. Asongu, 2013. "Fighting consumer price inflation in Africa: What do dynamics in money, credit, efficiency and size tell us?," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 5(1), pages 39-60, February.
  15. Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
  16. Asongu Simplice, 2012. "African Financial Development Dynamics: Big Time Convergence," Working Papers 12/003, African Governance and Development Institute..
  17. Beck, Thorsten & Levine, Ross, 2002. "Industry growth and capital allocation:*1: does having a market- or bank-based system matter?," Journal of Financial Economics, Elsevier, vol. 64(2), pages 147-180, May.
  18. Allen, Franklin & Qian, Jun & Qian, Meijun, 2005. "Law, finance, and economic growth in China," Journal of Financial Economics, Elsevier, vol. 77(1), pages 57-116, July.
  19. Julius A. Agbor, 2011. "How Does Colonial Origin Matter for Economic Performance in Sub-Saharan Africa?," Working Paper Series UNU-WIDER Working Paper W, World Institute for Development Economic Research (UNU-WIDER).
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