Do Legal Systems Matter?

The argument of this paper reduces to two key propositions. First, legal rules differ where technologies and endowments are similar. Second, diversity matters, in the sense that it exercises an independent influence on economic structure and rates of economic growth, and in ways that have not fully been explored. Recent literature has tended to limit the effect of law on productive use (the sectoral distribution of inputs)to its efficacy in overcoming or not introducing bargain-impeding transactions costs. Insufficient attention has been given to the macro-economic consequences of variation in income and expenditure flows associated with different legal systems or assignments of legal rights, which have traditionally been considered principally with reference to issues of equity or fairness, as distinguished from their impact on economic structure