Using state-level data from the United States, we find that differences in colonial legal
institutions have affected the current quality of state legal institutions. These differences
in colonial legal institutions arose because some states were settled by Great Britain, a
common law country, and other states were settled by France, Spain, and Mexico, all
civil law countries. To explain these findings, we develop a transplant-civil law
hypothesis that highlights the disruption associated with large-scale legal transplantation
and the possible relative inefficiencies of colonial civil law. We find strong support for
the transplant-civil law hypothesis. Our results are robust to the inclusion of additional
variables capturing climate, geography, initial population, resource endowments, state
level rules, and legal environment. Given the 150-200 year gap between the initial
conditions and the measures of the current quality of legal institutions, we provide
indirect evidence on the persistence of legal institutions. We then use initial legal systems
as a source of exogenous variation in current institutions for providing a series of
estimates of their impact on current economic performance.