Legal origins theory of capital markets

The links between the legal origins theory and the economic system of countries

The legal origins theory has often been linked with economic development in countries from all around the world. To put things better into perspective, the legal origins theory is known to claim that the two main legal traditions, these being either civil law, or common law, can crucially shape the process of legislative creation alongside with dispute adjudication in their countries, thus affecting numerous economic outcomes in the countries where they are implemented.
For those who do not know, common law represents a legal system where the law is developed by judged in courts, where decisions affect individual cases, but also create something known as a precedential effect on future cases. Civil law is quite different, as the decision of a judge does not create a precedential, and is only meant to affect the case that they are dealing with in court.
The link between the legal origins theory and economic impact is quite clear. Studies have shown that countries with civil law often display less investor rights, alongside with stricter regulation, but also governments and courts that can be considered as less efficient when compared to their counterpart. However, there are both advantages and disadvantages to both types of legislative systems, therefore common law is not suited for all cases.
In strictly economic terms, common law countries are bound to get more growth opportunities, considering the fact that the law is constantly changing, and affects millions of investors with capital placed in those countries. Colonized economy countries follow strict guidelines, which are more difficult to change, thus explaining why investors can often have a harder time, as legislative initiative isn’t easy to achieve, and it also takes longer for new laws to be promulgated.
Based on everything that has been outlined so far, numerous studies have shown that from an economic standpoint, common law countries are better off, as the laws are more lenient, and investors get more rights.

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