Rethinking the Law and Finance Paradigm

The label Law and Finance stands for a body of literature that has dominated policy-making and academic debates for the past decade. The literature has its origin in a series of papers co-authored by Andrei Shleifer, Rafael La Porta, Florencio Lopez-de-Silanes and a cohort of other researchers, including Robert Vishny, Simeon Djankov et al. (hereinafter referred to as LLS et al.). More than ten years after Law and Finance was first published, it seems appropriate to step back and consider the contribution this literature has made, but also to point out where it has gone astray and deviated attention from what the critical issues are for Law and Finance and, more broadly, for law and development. The lead authors of this literature have given their own assessment of theirs as well as of related work in a paper that has recently been published by the Journal of Economic Literature, which I will refer to throughout this essay. The second part of this essay will be devoted to a critique of the Law and Finance paradigm. The third part will sketch out alternative strategies for analyzing the role of law and legal institutions and the relation between legal and economic change in comparative perspective