Law, Finance, and Economic Growth

doi:10.1006/jfin.1998.0255

Journal of Financial Intermediation

Volume 8, Issues 1–2, January 1999, Pages 8-35

https://doi.org/10.1006/jfin.1998.0255 Get rights and content

Abstract

This paper examines how the legal environment affects financial development, and then asks how this in turn is linked to long-run economic growth. Financial intermediaries are better developed in countries with legal and regulatory systems that (1) give a high priority to creditors receiving the full present value of their claims on corporations, (2) enforce contracts effectively, and (3) promote comprehensive and accurate financial reporting by corporations. The data also indicate that the exogenous component of financial intermediary development—the component defined by the legal and regulatory environment—is positively associated with economic growth. Journal of Economic Literature Classification Numbers: G21, K12, O16

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^*: I thank Maria Carkovic, Bill Easterly, Lant Pritchett, Anthony Santomero, Andrei Shleifer, Anjan Thakor, an anonymous referee, and seminar participants at the Board of Governors of the Federal Reserve System, the University of Virginia, the World Bank, and the ABN AMRO/JFI Symposium in Scheveningen for helpful comments.

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Regular ArticleLaw, Finance, and Economic Growth

Abstract

J. Econ. Theory

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Regular Article
Law, Finance, and Economic Growth