Research / BFI Working PaperAug 30, 2022

Judicial Independence, Local Protectionism, and Economic Integration: Evidence from China

Ernest Liu, Yi Lu, Wenwei Peng, Shaoda Wang

We show that judicial independence can reduce local protectionism and foster crossregional economic integration. We 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, we 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, we 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 2.3% when the judicial independence reform is implemented nationwide.

More Research From These Scholars

BFI Working Paper Aug 29, 2023

Does the Squeaky Wheel Get More Grease? The Direct and Indirect Effects of Citizen Participation on Environmental Governance in China

Mark Buntaine, Michael Greenstone, Guojun He, Mengdi Liu, Shaoda Wang, Bing Zhang
Topics:  Energy & Environment
BFI Working Paper Feb 19, 2024

English Language Requirement and Educational Inequality: Evidence from 16 Million College Applicants in China

Hongbin Li, Lingsheng Meng, Kai Mu, Shaoda Wang
Topics:  Higher Education & Workforce Training
BFI Working Paper Nov 8, 2022

Subjective Performance Evaluation, Influence Activities, and Bureaucratic Work Behavior: Evidence from China

Alain de Janvry, Guojun He, Elisabeth Sadoulet, Shaoda Wang, Qiong Zhang
Topics:  Employment & Wages