When Does Legal Origin Matter?

Mohammad Amin () and Priya Ranjan ()
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Priya Ranjan: Department of Economics, University of California-Irvine
Authors registered in the RePEc Author Service: Priyaranjan Jha

No 80912, Working Papers from University of California-Irvine, Department of Economics

Abstract: A vast literature documents better economic institutions in common law compared with civil law countries. The present paper argues that legal origin alone is insufficient to explain differences in the quality of economic institutions across countries. Rather, it is the interaction between legal origin and the quality of political institutions that is important. Empirical evidence from a cross-section of 90 countries on entry regulation, a measure of how business friendly economic institutions are towards firms, strongly supports our claim. For example, we find that the number of procedures required to start a business are lower in common law compared with civil law countries by 2.5 procedures or 24.3% of the sample mean. However, this difference varies sharply across the sample of countries with high and low levels of political accountability. It equals a large 3.4 procedures (37% of the sample mean) for the former and a mere 1.1 procedures (9.7% of the sample mean) for the latter. We conclude that legal origin matters for the quality of economic institutions but only when political accountability is high. We provide a plausible explanation for this phenomenon based on recent findings in the literature on political economy.

Keywords: Legal origin; Regulation,; Political institutions (search for similar items in EconPapers)
JEL-codes: H11 K2 P48 P51 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2008-12
New Economics Papers: this item is included in nep-law, nep-pol and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:irv:wpaper:080912

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