Law, Endowment, and Finance / Thorsten Beck, Asli Demirguc-Kunt, Ross Levine.

Format:

Book

Author/Creator:

Beck, Thorsten.

Contributor:

Demirguc-Kunt, Asli.

Levine, Ross.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9089.

NBER working paper series no. w9089

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2002.

Summary:

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.

Notes:

August 2002.

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