Law, Endowment, and Finance

Thorsten Beck, Asli Demirguc-Kunt and Ross Levine ()

No 9089, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper assesses two theories regarding the historical determinants of international differences in financial development. The law and finance theory holds that legal traditions differ in terms of the priority they attach to protecting the rights of private investors vis-a-vis the State and this has important implications for financial development. The endowment theory argues that the disease and geographical environment influence the formation of long-lasting institutions that influence financial development. Using a sample of former colonies, we explore whether the legal system brought by colonizers and/or the initial disease/geographical endowments encountered by colonizers explain financial development today. The empirical results indicate that both the legal systems brought by colonizers and the initial endowments in the colonies are important determinants of stock market development and private property rights protection. However, initial endowments are more robustly associated with financial intermediary development than legal origin and initial endowments explain more of the cross-country variation in financial intermediary and stock market development than legal origin.

JEL-codes: G2 K2 (search for similar items in EconPapers)
Date: 2002-08
New Economics Papers: this item is included in nep-fin, nep-law, nep-mfd and nep-pub
Note: IFM LE PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Published as Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Law, endowments, and finance," Journal of Financial Economics, Elsevier, vol. 70(2), pages 137-181, November.

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