Can Civil Law Countries Get Good Institutions? Lessons from the History of Creditor Rights and Bond Markets in Brazil

Abstract

Does a legal tradition adopted in the distant past constrain a country's ability to provide the protection that investors need for financial markets to develop? I look at the relationship between legal origin and the development of bond markets and find too much variation over time in bond market size, creditor protections, and court enforcement of bond contracts to assume that the adoption of a legal system constrains future financial development. I examine the evolution of bond markets in Brazil, a French civil law country, and provide preliminary results of similar variation for a small cross-section of countries.