Institutional design and the economy: disentangling the effects of judicial independence and judicial review on economic development

Scholars, politicians, and economic leaders widely believe that an independent, efficient judiciary facilitates economic growth. However, relatively few empirical studies have been conducted to evaluate the relationship between the judiciary and the economy. As a result, we have a limited and an ambiguous understanding of the effect of courts. In this dissertation, I provide insight into the relationship between the judiciary and economic growth by disentangling judicial independence and judicial review and evaluating their effects using a large-n, comparative research design. I empirically demonstrate that judicial independence and judicial review are conceptually distinct and have independent and varying effects on economic growth. Specifically, I find that increased levels of judicial independence have a significant, positive effect on growth while increased levels of judicial review power have a significant negative effect. However, I find that the effect of judicial review becomes positive if a country’s constitution explicitly protects economic rights. Thus, the effect of judicial review is dependent upon extra-judicial, institutional features. With this study, I provide empirical support for the belief that judicial independence facilitates growth; however, I also show that the relationship between the judiciary and the economy is complex and contingent on both the nature of the judiciary and other institutional features. Further, I highlight the importance of conceptually separating judicial characteristics, specifically judicial independence and review, and evaluating their impact independently to understanding the effect of courts.