Legal History, Institutions and Banking System Development in Africa

Discussion Papers 1844, 36 S.

Samuel Mutarindwa, Dorothea Schäfer, Andreas Stephan


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This paper links banking systems development to the colonial and legal history of African countries. Specifically, we investigate the impact of differing legal traditions on the development of existing investor and creditor protection, and on African banking systems. Based on a sample of 40 African countries from 2000 to 2016, our empirical findings show a significant dependence of current financial institutions on the legal origin and the colonization type. Findings also reveal that current legal financial institutions are not the major determinants of banking system development, whereas institutional and regulatory quality significantly matter for banking system development in both common and civil law countries. Strong creditor rights reduce the cost of banking in African countries.

Dorothea Schäfer

Forschungsdirektorin Finanzmärkte in the Macroeconomics Department

JEL-Classification: G21;G38;G39;K40;K15
Keywords: Legal origin, colonial history, financial institutions, banking system, Hausman-Taylor estimation