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.