LEGAL ORIGIN

The Evolution of Financial Markets Project uses new annual, macro-historical data on stock market capitalization, bank deposits and the output of the financial sector for eighteen advanced economies between 1870 and 2010 to shed light on this perennial question... Legal origins theory claims that common law fosters investor protection and financial development. As countries' legal origins have been determined hundreds of years ago, this predicts that common law countries featured larger capital markets and larger financial systems than civil law countries throughout history. I show that these predictions hold in my data... Common law countries had substantially larger capital markets than civil law countries since at least 1870. Stock markets in common law countries were twice as large in 1885, 50% larger in 1929, and two-to-three times as large as in civil law countries after World War II. Convergence between common and civil law countries prior to World War I, was followed by..