The Legal Environment, Banks, and Long-Run Economic Growth

Posted: 18 May 1998

See all articles by Ross Levine

Ross Levine

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Abstract

This paper examines the relationship between the legal system and banking development and traces this connection through to long-run rates of per capita GDP growth, capital stock growth, and productivity growth. The data indicate that countries where the legal system (1) emphasizes creditor rights and (2) rigorously enforces contracts have better developed banks than countries where laws do not give a high priority to creditors and where enforcement is lax. Furthermore, the exogenous component of banking development--the component defined by the legal environment--is positively and robustly associated with per capita growth, physical capital accumulation, and productivity growth.

JEL Classification: O16, O17

Suggested Citation

Levine, Ross Eric, The Legal Environment, Banks, and Long-Run Economic Growth. Journal of Money, Credit and Banking, Vol. 30, No. 3, Part 2, August 1998. Available at SSRN: https://ssrn.com/abstract=88888

Ross Eric Levine (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

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2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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