Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/175517
Authors: 
Amirapu, Amrit
Year of Publication: 
2017
Series/Report no.: 
School of Economics Discussion Papers 1706
Abstract: 
Are well-functioning formal judicial institutions important for economic development, or can informal contracting arrangements provide adequate substitutes? This paper aims to answer this question using variation across industries in their reliance on contracts along with variation across Indian states in the average speed of courts. The identification strategy is motivated by theory from the incomplete contracting literature in which it is argued that transactions involving relationship-specific investments are more exposed to post-contractual opportunism and hence have greater need for efficient contract enforcement. The paper finds that the interaction between state level court efficiency and industry level relationship-specificity is highly predictive of future growth in India's formal manufacturing sector. The threat of omitted variable bias is minimized by the inclusion of state and industry fixed effects, while a number of robustness checks and placebo tests rule out competing explanations and provide additional confidence in the hypothesized mechanism.
Subjects: 
Courts
Legal Institutions
Contract Enforcement
Firms and Development
JEL: 
K40
O17
O43
Document Type: 
Working Paper
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