Why Do French Civil-Law Countries Have Higher Levels of Financial Efficiency?
Published in: Journal of Advanced Research in Law and Economics, 2(2), pp. 94-108. (2011).
27 Pages Posted: 9 Sep 2014 Last revised: 1 Apr 2015
Date Written: October 8, 2014
The dominance of English common-law countries in prospects for financial development in the legal-origins debate has been debunked by recent findings. Using exchange rate regimes and economic/monetary integration oriented hypotheses, this paper proposes an “inflation uncertainty theory” in providing theoretical justification and empirical validity as to why French civil-law countries have higher levels of financial allocation efficiency. Inflation uncertainty, typical of floating exchange rate regimes accounts for the allocation inefficiency of financial intermediary institutions in English common-law countries. As a policy implication, results support the benefits of fixed exchange rate regimes in financial intermediary allocation efficiency.
Keywords: Banking; allocation efficiency; exchange rate; inflation; economic integration
JEL Classification: D61; G20; K00; P50; R10
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