Labor Regulation, Corporate Governance, and Legal Origin: A Case of Institutional Complementarity?

Abstract

We explore the influential claim that “legal origin”—the historical origin of a given national legal system in the common law or civil law—accounts for a significant degree of cross-national diversity in economic regulation and development. We show that the claim is undermined by problems in index construction and by a misreading of the implications of the common law/civil law divide for the respective roles of courts and legislatures in law making. We argue that a critical factor, instead, was the timing of industrialization in relation to the emergence of legal institutions associated with the modern business enterprise (the employment relationship and the joint stock company). We also show how distinctive “legal cultures” of the common law and civil law have played a part in setting national systems on separate pathways to economic development.