Understanding legal origins: On the determinants and impact of legal traditions

To shed light on the determinants and impact of legal traditions, I evaluate the idea that the uncertain common law can prevail over the certain civil law only when sufficiently heterogeneous legal preferences and/or sufficiently inefficient political institutions encourage the legislator to bias statutes in order to favor special interests. Operationally, I focus on 51 transplants for which I observe over the 1945–2005 period the evolution of the legal tradition, economic outcomes, control variables and the product of the time-varying population share of the ethnic group that was the largest at independence and either its long-lived norms of self-reliance or its genetic distance to the group that was the largest at independence in the exogenously assigned legal origin. These last two variables constitute time-varying proxies for, respectively, the transplant’s aversion to inefficient political institutions and the differences between the transplant’s legal preferences and those of its origin. Consistent with the testable predictions, reforms towards institutions typical of a pure common law legal tradition are found where genetic distance is the largest and a culture of self-reliance is the weakest. Moreover, not only did these reforms encourage stock market capitalization while curbing the unemployment rate in the developing transplants with the most heterogeneous legal preferences, but they also amplified labor market inefficiencies in developing transplants displaying the strongest norms of self-reliance.