THE ECONOMIC CONSEQUENCES OF A WEAK JUDICIARY: INSIGHTS FROM INDIA

This paper examines the empirical relationship between the quality of the Indian judiciary and the economic development of the Indian States and Union Territories. It evaluates this causality by analysing the development of the state-level per capita income and poverty rates. I define the quality of the judiciary in terms of: (i) its speed in deciding trials; and, (ii) the predictability of the trial outcome. I measure speed by the backlog in High Courts and predictability through the rate of allowed appeals to the Supreme Court from the High Court. The methodology applied is a cross-regional time-series regression that simultaneously estimates the endogenous relationship between the quality of the judiciary and productive factors, such as agricultural production, private sector development, capital formation, poverty rates, public security and infrastructure. These productive factors in turn influence the level of per capita income, which I model as a function of the size of the agricultural and private services sector, the poverty rate, the transportation infrastructure density, the rental income of land, the fixed capital formation in the industrial sector, the development of the credit markets, the literature rates, and the public safety. The data indicate that a weak judiciary has a negative effect on economic and social development, which leads to: (i) lower per capita income; (ii) higher poverty rates; (iii) lower private economic activity, (iv) poorer public infrastructure; and, (v) higher crime rates and more industrial riots. The results are robust and the correlations are strong and negative. In addition, through a forecasting simulation I have shown that an increase in predictability and a speedier judiciary substantially increase the per capita income growth rate.