The
Legal Origins Theory or Law and Finance Theory has been put forward by a group of researchers working with Andrei Shleifer. According to this theory, the financial status and economic development of a country is related to the legal system of that particular country. At the same time, the legal system as well as the economic status is related to that source from where the legal system of the country originated. The group of researchers has been publishing the research papers on Legal Origins Theory from 1997 onwards.
A number of countries were colonized in past. At that time, the colonial masters imposed a legal system in their colonies that was prevailing in their own countries. Because of this, the original legal systems of the colonies (if there were any) were transformed and after independence, these colonies adopted the legal system of their colonial masters. Because of this, it can be said that the economy of those countries are related to the colonizer company. The countries are categorized according to their legal infrastructure. According to this, there are two types of countries. The first type of countries are those that are following common law and the second category consists of those countries that are continuing with the legal system of their colonial masters.
The prime belief of Legal Origins Theory is that the common law existing in certain countries emphasizes the market institutions or in other words, it can be said that the common laws are very much concerned with the market institutions than the state interventionism. On the other hand, the legal system that has been adopted from the countries like France, Germany and Scandinavian countries are in favor of the state interventionism to some extent. So, according to the Legal Origins Theory, the countries with common law get more opportunity for economic development.
At the beginning, the Legal Origins Theory was concerned with the corporate laws but gradually the theory is also used in several other fields to find answers of certain questions.