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Do Legal Origins Have Persistent Effects Over Time? A Look at Law and Finance Around the World c. 1900

64 Pages Posted: 22 Jan 2008  

Aldo Musacchio

Brandeis University- International Business School; National Bureau of Economic Research

Date Written: January 23, 2008

Abstract

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.

Keywords: Legal origins, financial development, creditor rights, shareholder rights, stock markets, history, bankruptcy, globalization

JEL Classification: G15, G38, G33, K22, N20, N40

Suggested Citation

Musacchio, Aldo, Do Legal Origins Have Persistent Effects Over Time? A Look at Law and Finance Around the World c. 1900 (January 23, 2008). Available at SSRN: https://ssrn.com/abstract=1086225 or http://dx.doi.org/10.2139/ssrn.1086225

Aldo Musacchio (Contact Author)

Brandeis University- International Business School ( email )

415 South Street MC 32
Waltham, MA 02454-9110
United States

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/aldo_musacchio

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