Common law vs Civil law : Economy

The economy of different countries grows at different rates. This is evident by comparing the real per capita Gross Domestic Product (GDP) of different countries. For example, Australia’s GDP growth rate from 2011-2012 was 3.4% while New Zealand’s GDP growth rate was 3.0%. Due to its significance on the national welfare, every country aims to increase their economic growth rate as economic growth means higher income, lower unemployment, lower government borrowing and improved public services and encourages investment (Brenner 1998). Given the potential national benefit from achieving an efficient economy, economist have studied and suggested what factors drive growth. Due to the important role played by the law in the finance sector, economist and policy makers argued that the legal system can have a major influence on a country’s economic prosperity. This leads us to the main topic of this research essay. The aim of this essay is to compare the strengths and weaknesses of the common law system with the civil law system with reference to economic prosperity. The first section will explain the connection between the legal origin of a country and its economic growth with reference to theories and hypothesis from various academic literatures. The second part will give an overview of the main difference between the two legal systems and compare the strengths and weaknesses of each. Lastly, to conclude the essay, this paper will weigh the pros and cons of each legal system and will conclude which of the two is a better system in the context of economic prosperity.
I.
Since the connection between law and finance was introduced, there has been an emergence of literature claiming that a nexus between a country’s legal origin and economic growth exist. One of the well known theories that have been referred to by many researchers is the law and finance theory. This theory argues that the legal system is important in the way it is promoting or preventing financial

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