Law, finance, and politics: The case of India

Journal article

The liberalization of India’s economy since 1991 has brought with it consid-erable development of its financial markets and supporting legal institutions.An influential body of economic scholarship asserts that a country’s ‘‘legalorigin’’Fas a civilian or common law jurisdictionFplays an important part indetermining the development of its investor protection regulations, and con-sequently its financial development. An alternative theory claims that the de-terminants of investor protection are political, rather than legal. We use thecase of India to test these theories. We find little support for the idea thatIndia’s legal heritage as a common law country has been influential in speed-ing the path of regulatory reforms and financial development. Rather, wesuggest there are complementarities between (1) India’s relative success inservices and software; (2) the relative strength of its financial markets foroutside equity, as opposed to outside debt; and (3) the relative success of stockmarket regulation, as opposed to reforms of creditor rights. We conclude thatpolitical economy explanations have more traction in explaining the case ofIndia than do theories based on ‘‘legal origins.’’

Authors: Armour, J; Lele, P

• Publication status: Published
• Peer review status: Peer reviewed
• Publisher: Wiley
• Journal: Law & Society Review
• Volume: 43
• Issue: 3
• Pages: 491-526
• Publication date: 2009-09-01
• DOI: 10.1111/j.1540-5893.2009.00380.x
• EISSN: 1540-5893
• ISSN: 0023-9216
• Keywords: SBTMR