Abstract
This paper examines how judicial ineffectiveness contributes to economic underdevelopment. A
theoretical model presents enforcement credibility as a threshold variable that shapes investment
behavior, institutional feedback, and systemic trust. When courts fail to operate predictably and
impartially, actors rationally withdraw from formal markets, producing stagnation and a dual legal order between those with access to external arbitration and those reliant on weak domestic
systems. The empirical analysis, based on a panel of up to 150 countries (2017–2022), confirms a
robust positive link between judicial effectiveness and investment, a key driver of long-term growth.
The effect remains significant across specifications and robustness checks, even after controlling
for property rights, rule of law, and corruption. The study concludes that judicial reform should
be treated as a growth strategy. Effective courts reduce uncertainty, foster investment, and support sustainable development, while reliance on external mechanisms delays reform and deepens
inequality.
theoretical model presents enforcement credibility as a threshold variable that shapes investment
behavior, institutional feedback, and systemic trust. When courts fail to operate predictably and
impartially, actors rationally withdraw from formal markets, producing stagnation and a dual legal order between those with access to external arbitration and those reliant on weak domestic
systems. The empirical analysis, based on a panel of up to 150 countries (2017–2022), confirms a
robust positive link between judicial effectiveness and investment, a key driver of long-term growth.
The effect remains significant across specifications and robustness checks, even after controlling
for property rights, rule of law, and corruption. The study concludes that judicial reform should
be treated as a growth strategy. Effective courts reduce uncertainty, foster investment, and support sustainable development, while reliance on external mechanisms delays reform and deepens
inequality.