Description
This book investigates whether legal reforms intended to create a market-friendly regulatory business environment have a positive impact on economic and financial outcomes. After conducting a critical review of the legal origins literature, the authors first analyze the evolution of legal rules and regulations during the last decade (2006-2014). For that purpose, the book uses legal/regulatory indicators from the World Bank’s Doing Business Project (2015). The findings indicate that countries have actively reformed their legal systems during this period, particularly French civil law countries. A process of convergence in the evolution of legal rules and regulations is observed: countries starting in 2006 in a lower position have improved more than countries with better initial scores. Also, French civil law countries have reformed their legal systems to a larger extent than common law countries and, consequently, have improved more in the majority of the Doing Business indicators used. Second, the authors estimate fixed-effects panel regressions to analyze the relationship between changes in legal rules and regulations and changes in the real economy. The findings point to a lack of systematic effects of legal rules and regulations on economic and financial outcomes. This result stands in contrast to the widespread belief that reforms aiming to strengthen investor and creditor rights (and other market-friendly policies) systematically lead to better economic and financial outcomes. Daniel Oto-Peralias is lecturer (Assistant Professor) at St Andrews University School of Management. He holds university degrees in Management and Business Administration and in Law, and has conducted postgraduate studies in economics and politics. He received his PhD from Pablo de Olavide University (Spain) in June 2014. His research focuses on the fields of law and finance and economic development, particularly on the role played by inequality and institutions in economic activity and welfare, paying special attention to the historical processes involved. Daniel has contributed to many economics conferences and has published articles in prestigious economic journals such as Journal of the European Economic Association, Journal of Economic Growth, Journal of Money, Credit, and Banking, and Journal of Law and Economics. During 2016 he undertook consultancy work for the World Bank on the subject of law and development.” Diego Romero-vila is Associate Profes sor at Pablo de Olavide University. He has been Research Fellow at the European Central Bank, Visiting Professor at Vienna University of Economics and Business, and External Consultant at the World Bank. His research interests lie in the fields of Macroeconomics and Development Economics. He has published articles in such academic journals as International Economic Review, Journal of the European Economic Association, Journal of Economic Growth, Journal of Law and Economics, Journal of Money, Credit and Banking, and Economic Inquiry, among others. 1. Introduction 2. Revisiting the Legal Origins Hypothesis: A Brief Review of the Literature 2.1 The Legal Origins View 2.2. Arguments Based on Colonialism and the Distribution of Legal Traditions around the World 2.3. Arguments based on Political Economy 2.4. Arguments based on Measurement and Recoding of Legal Data 2.5 Recapitulation 3. Data Description 3.1 Legal and Regulatory Indicators 3.2 Economic and Financial Outcomes 3.3 Description of Doing Business Reforms since 2006 4. Literature Review on the Effect of the Ease of Doing Business on Economic and Financial Outcomes 4.1 Research on Protecting Minority Investors 4.2 Research on Getting Credit and Information Disclosure 4.3 Research on Contract Enforcement 4.4 Research on Resolving Insolvency 4.5 Research on Starting a Business 4.6 Research on Registering a Property and Protecting Property Rights 4.7 Research on Dealing with Construction Permits 4.8 Research on Paying Taxes 4.9 Research on Trading across Borders 5. Legal Change within Legal Traditions and Convergence 5.1. Has There Been Legal Change over the period 2006-2014? 5.2. Have Legal Reforms Reduced the Differences in Legal Rules/regulations across Legal Traditions? 5.3. Has There Been Convergence in Legal and Regulatory Standards among Legal Traditions over the Period 2006-2014? 5.4. More on Convergence: Robustness Checks 6. Legal Rules Variation and Countries’ Economic and Financial Performance 6.1. The Effect of Legal Rules and Regulations on Economic and Financial Performance 6.2. Distinguishing the Circumstances under Which the Effect Takes Place 6.2.1 Differentiating by Level of Development 6.2.2 Differentiating by Institution al Quality 6.2.3 Differentiating by Legal Tradition 6.2.4 Interacting Legal and Regulatory Indicators with the Level of Development 6.3. Graphical Analysis of the Relationship between Legal Change and Financial and Economic Development 7. Sensitivity Analyses on the Effect of Legal Rules Variation on Economic and Financial Performance 7.1. Using Alternative Legal Indicators 7.2. Using Alternative Panel Estimations: Difference and System GMM Estimators 7.3. General Discussion 8. The Effectiveness of Legal Reforms and the Gap between Law on the Books and the Reality on the Ground 8.1. Explanatory Factors for the Effectiveness of Legal Reforms: A Preliminary Analysis 8.2. Gap between Law on the Books and the Reality on the Ground 8.3. Gap between Law on the Books and Law in Action 8.4 Summary of Results 9. Conclusions
