Journal of Economic Literature
ISSN 0022-0515 (Print) | ISSN 2328-8175 (Online)
Finance and Politics: A Review Essay Based on Kenneth Dam's Analysis of Legal Traditions in The Law-Growth Nexus
Journal of Economic Literature
vol. 47,
no. 3, September 2009
(pp. 781–800)
Abstract
Strong financial markets are widely thought to propel economic development, with many in finance seeing legal tradition as fundamental to protecting investors sufficiently for finance to flourish. Kenneth Dam finds that the legal tradition view inaccurately portrays how legal systems work, how laws developed historically, and how government power is allocated in the various legal traditions. Yet, after probing the legal origins' literature for inaccuracies, Dam does not deeply develop an alternative hypothesis to explain the world's differences in financial development. Nor does he challenge the origins core data, which could be origins' trump card. Hence, his analysis will not convince many economists, despite that his legal learning suggests conceptual and factual difficulties for the legal origins explanations. Yet, a dense political economy explanation is already out there and the origins-based data has unexplored weaknesses consistent with Dam's contentions. Knowing if the origins view is truly fundamental, flawed, or secondary is vital for financial development policy making because policymakers who believe it will pick policies that imitate what they think to be the core institutions of the preferred legal tradition. But if they have mistaken views, as Dam indicates they might, as to what the legal traditions' institutions really are and which types of laws are effective, or what is really most important to financial development, they will make policy mistakes -- potentially serious ones.Citation
Roe, Mark J., and Jordan I. Siegel. 2009. "Finance and Politics: A Review Essay Based on Kenneth Dam's Analysis of Legal Traditions in The Law-Growth Nexus." Journal of Economic Literature, 47 (3): 781–800. DOI: 10.1257/jel.47.3.781JEL Classification
- E23 Macroeconomics: Production
- H11 Structure, Scope, and Performance of Government
- K10 Basic Areas of Law: General (Constitutional Law)
- K40 Legal Procedure, the Legal System, and Illegal Behavior: General
- N40 Economic History: Government, War, Law, and Regulation: General, International, or Comparative
- O17 Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- O40 Economic Growth and Aggregate Productivity: General