Judging the Market: Judicial Independence, the Rule of Law, and Economic Development

Michael Touchton and Michael Tyburski
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Michael Touchton: Department of Political Science, Institute for Advanced Study of the Americas, University of Miami, Miami, FL, USA
Michael Tyburski: Department of Political Science, Kansas State University, Manhattan, KS, USA

International Journal of Innovation and Economic Development, 2022, vol. 8, issue 3, 12-26

Abstract: Independent judicial systems exist to protect individual rights from state encroachment and majoritarian pressures. Citizens’ property rights depend particularly on judiciaries’ willingness and ability to restrain the political branches of power. In turn, upholding the rule of law from the perspective of enforcing contracts and securing property rights is seen as crucial for promoting economic development because investment capital will flee without government commitments not to seize property or tax profits at confiscatory rates. This article brings empirical research closer to the understanding of those judging the market: investors, entrepreneurs, and analysts that recommend where to commit resources abroad. We test hypotheses connecting de jure judicial independence, de facto judicial independence, and the rule of law using a unique dataset of 174 countries from 1996-2019. Importantly, we find that judicial independence in practice (de facto independence) is more important for the rule of law than formal judicial independence (de jure independence). Thus, promoting de facto judicial independence can improve countries’ prospects for economic and political development. To be sure, courts in countries that have de jure independence can also be de facto independent. We find, however, that institutional talk is cheap in the context of the judiciary; markets will judge countries with low rule of law harshly for investment and ensuing economic growth.

Keywords: Judicial Independence; Rule of Law; Economic Development (search for similar items in EconPapers)
JEL-codes: M00 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:mgs:ijoied:v:8:y:2022:i:3:p:12-26

DOI: 10.18775/ijied.1849-7551-7020.2015.83.2002

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