The common law and economic growth: Hayek might be right

Recent finance scholarship finds that countries with legal systems based on the common law have more developed financial markets than civil-law countries. The present paper argues that finance is not the sole, or principal, channel through which legal origin affects growth. Instead, following Hayek, I focus on the common law's association with limited government. I present evidence that common-law countries experienced faster economic growth than civil-law countries during the period 1960-92 and then present instrumental variables results that suggest that the common law produces faster growth through greater security of property and contract rights.