Law and Finance in Africa

This paper assesses how legal origin influences financial development through regulation quality and the rule of law. It employs all the dimensions identified by the Financial Development and Structure Database of the World Bank. The law channels are instrumented with legal origins to account for financial intermediary dynamics of depth, efficiency, activity and size. The results broadly support the benefits of law mechanisms in financial development. The findings only show partial support for the consensus that English common law countries provide better conditions for financial development. While they dominate in dynamics of depth, activity and size, French civil law countries have an edge in financial allocation efficiency. Portuguese civil law countries broadly fall in-between. With the exception of financial efficiency, French civil law sub-Saharan African (SSA) countries are least while North African countries dominate even English common law countries in financial intermediary aspects of depth and activity. French SSA countries dominate overall in allocation efficiency.