Spending Habits, and Economic Growth Effects in Common Law vs. Non-Common Law Political Systems Among Developed Countries

Introduction: Different law systems often lead to different degrees of economic developments and political systems, which are closely related to the life of citizens. There is a long debate about which law system, Common Law or Civil Law, is better for the economic development of a country. A popular viewpoint is that the Common Law system is superior to non-Common Law systems due to its higher protection for property.

Objective: Our goal is to evaluate which law system is better for economic systems, through data processing and statistical hypothesis testing. The findings can be a reference for further investigation of the advantages of different law systems.

Methods: To develop the model, we use the data from International Monetary Fund (IMF), World Bank, and various government Central Banks’ websites). We select 14 variables related to the key field of economic development. We first apply the Shapiro-Wilk test for normality to decide which statistical hypothesis test is appropriate. For normally distributed variables, we employ the parametric independent-samples t-test for mean difference; otherwise, we employ the non-parametric Mann-Whitney U Test. All the tests are done in R.

Result: Out of the 14 variables, we find three (i.e. final consumption expenditure, value-added manufacturing, and GDP growth) to be significant at 0.05 significance level. Common Law countries have significantly higher final consumption expenditure and GDP growth, with lower value-added manufacturing growth, than Civil Law countries.

Conclusions: The results imply that Common Law countries are indeed more helpful for general economic development, while Code Law countries are superior for economic development in manufacturing. These results support the viewpoint that the Common Law system gives people and companies more confidence to participate in the market, and thus, Common Law countries are better for economic developments. It also confirms this report’s hypothesis that Common Law countries are better than Code Law countries in promoting economics.