Capital Market Development: China and Asia Seminar Series – Judicial Independence, Local Protectionism, and Economic Integration: Evidence from China
The authors show that judicial independence can reduce local protectionism and foster cross-regional economic integration. They exploit a judicial independence reform in China with staggered roll-out since 2014. The reform removed local governments’ control over local courts’ financial and personnel decisions, thereby substantially improving local courts’ independence. Combining novel data on the universes of civil lawsuits and business registration records, the authors show that local defendants’ rate of winning court cases against non-local plaintiffs declined by 7.0% after the reform. The effect is mainly driven by improvements in the quality of judicial decisions and is more salient for politically connected local defendants. Over time, the reduction in local protectionism encouraged smaller non-local firms to file lawsuits against larger local firms. Using the shareholding network extracted from business registration records, the authors find that the decline in local protectionism could attract 8.4% more inward investment flows into reformed localities. This has the potential to increase China’s GDP by 1.9% when the judicial independence reform is implemented nationwide.
About the Seminar Series
Financial market development goes hand-in-hand with economic growth. The development of China’s capital markets in terms of size, regulations, capability, and efficiency has been impressive. China may now even lead globally in some dimensions, notably e-payments systems. Yet, China’s capital markets are still a work-in-progress facing both generic and unique challenges. Other Asian capital markets have even greater uneven development. Some in advanced Asian economies have acquired globally acclaimed reputation and capabilities while various regulatory and structural weaknesses dwarf others. Corporations and investors have been inclined to arbitrage cross-border regulatory and developmental gaps; so the very uneven status of capital markets across Asia is a policy issue for the governments in the entire region and perhaps globally. Analyzing the positive and negative lessons in the functioning of Asia’s capital markets, and identifying reforms and applications of technology that could further improve Asian capital markets’ allocation efficiency, financial inclusion, and forewarning against reforms that might cause problems can benefit practitioners, policymakers and researchers, and can contribute significantly to overall prosperity.
The ABFER and the University of Chicago’s Becker Friedman Institute China (BFI-China), in collaboration with National University of Singapore (NUS) Business School, Shanghai Advanced Institute of Finance (SAIF), The Chinese University of Hong Kong (CUHK) Department of Economics, CUHK-Shenzhen and Tsinghua University PBC School of Finance (Tsinghua PBCSF), hope to provide a virtual network to benefit researchers, policymakers, and practitioners from Asia and beyond.
All times are listed in Central Standard Time.
Wednesday, February 15, 2023
Judicial Independence, Local Protectionism, and Economic Integration: Evidence from China
Shaoda Wang, Assistant Professor, Harris School of Public Policy, University of Chicago
Emanuele Colonnelli, Associate Professor of Finance and MV Advisors Faculty Fellow, Booth School of Business, University of Chicago
Zhiguo He, Fuji Bank and Heller Professor of Finance and Jeuck Faculty Fellow, Booth School of Business, Director of Becker Friedman Institute for Economics in China, University of Chicago, and Senior Fellow, ABFER