law and strongfinancestrong at the origin ulrike malmendier.pdfVIP

Law and Finance at the Origin Ulrike Malmendier Paper Proposal for the Journal of Economic Literature [Almost full text of introduction; abbreviated subsequent sections.] 1 Introduction Understanding the causes of financial development and economic growth is central to the research agenda in economics. The law and finance literature has provided us with theo- retical arguments and empirical evidence that a country’s legal system affects finance and growth (La Porta, Lopez-de-Silanes, Shleifer, and Vishny, 1997 and 1998). More recently, researchers have started to re-evaluate the role of legal institutions relative to political institutions (Rajan and Zingales, 2003; Acemoglu and Johnson; 2005; Pagano and Volpin, 2005). These researchers argue that different political environments prompt different degrees of economic and financial development. The effectiveness of institutions might vary considerably with the political support they receive. One insight emerging from this debate is that it is hard to get definitive answers on the empirical determinants of growth. Given the rarity of perfect natural experiments, careful and detailed analyses of individual cases are particularly valuable and an impor- tant part of the literature, even if they stop short of proving causality. In fact, much of the literature revolves around specific examples, mostly referring to the last two centuries.1 This paper extends the current evidence to a much earlier time period, two thou- sand years ago in the Roman Republic and the Roman Empire. We propose that, contrary to widespread belief, the first predecessor of the modern business corporation was not the English East India Company nor the medieval commenda,2 but the Roman societas publi- canorum, i.e. the “society of government leaseholders.” We provide details about the functi