Legal Infrastructure, Judicial Independence, and Economic Development

Abstract

Economic theory generally supports the idea that judicial independence, and, more generally, high quality courts, facilitate economic growth. Good, independent courts enforce contracts and protect property, and by doing so encourage the investment which is crucial for economic development. Nevertheless, judicial independence and good courts are not necessary to investment, because there are other mechanisms which can enforce contracts and protect property, albeit perhaps not as well as courts. Contracts can be enforced by reputation, without recourse to the courts. Similarly, the government can protect property through executive restraint and policing, even if constitutional protections are weak and private litigation is ineffective. Thus, economic growth often starts without strong courts, and efforts to improve the quality of the judiciary are often the consequence, not the cause, of economic development.The empirical literature, to the extent that it has investigated the relationship between courts and economic growth, has focused on judicial independence. Judicial independence is, of course, only one aspect of quality courts. Nevertheless, it is relatively easy to measure and probably correlated with other indices of court quality. It thus serves as a rough proxy for the quality of legal infrastructure. There is some evidence that judicial independence is associated with economic growth, but the evidence is mixed and causation is unclear.