| In economics, the Legal Origins Theory states that many aspects of a
country's economic state of development are the result of their legal
system, most of all where a particular country received its law from. The first papers on the theory were published from
1997 onwards by a group of researchers around Andrei Shleifer.
Theory
Since, historically, most countries received their law through colonial
transplantation, law is
considered to be exogenous to the analysis. Some economists have thus classified countries on whether they adhere to common law or whether their legal system is based on French civil law, German civil law or Scandinavian civil
law and done empirical research finding correlations between economic indicators and that classification.
The basic thrust of the theory is that common law, as opposed to French civil law, and to a lesser degree to German and
Scandinavian civil law, is associated with more orientation towards institutions of the market (instead of state
interventionism), which is why, according to proponents of the Legal Origins Theory, common law countries tend to be economically
more developed.
While the theory originally started out in corporate law, where common
law was found to be correlated with better shareholder protection and more developed financial markets, the theory has in the
meantime been extended to lots of other fields, such as whether or not a country is likely to have military service (common law countries are least likely to).
Criticism
Especially the earlier papers developing the theory faced a lot of criticism. Most of all, the research underlying the indexes
on specific legal rules used in the earlier papers on corporate law did not meet the basic minimum standards of comparative law and thus crudely mischaracterized continental European corporate
governance systems. The authors of those papers thus had to face a lot of hostility from European corporate law scholars.
However, indexes made in later papers somewhat improved on this point.
The judges are still out on whether the Legal Origins Theory adequately describes reality; it is still hotly discussed, most
of all among financial economists and scholars of corporate
law.
Proponents
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