Abstract: Most pre-crisis explanations of the various corporate governance explanations have considered the separation between ownership and control to be an advantage of the Anglo-American economies and have attributed the failure of other countries to achieve these efficient arrangements to their different legal and/or electoral systems. In this paper we compare this view with the co-evolution hypothesis that countries have a tendency to cluster along complementary politics-business interaction paths. We argue that this hypothesis provides a more convincing explanation of the past histories of major capitalist economies and can suggest some useful possible scenarios of their future institutional development. In support of the co-evolution hypothesis we run Bayesian simultaneous equation estimation and perform Bayesian model comparison of the various theories on employment protection determination.

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