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The Role of the Courts in Economic Development: The Case of Prewar Japan

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  • Nakabayashi, Masaki
  • Okazaki, Tetsuji

Abstract

In this paper, we explore the role of the legal system in economic development, focusing on its relationship to the role of private mechanisms in contract enforcement. We use long-term prefecture-level panel data that cover the early stages of industrialization and urbanization in Japan. We found that industrialization increased the demand for civil lawsuits, but that this was conditional on urbanization. In other words, increased demand for civil suits occurred only where industrialization and urbanization simultaneously progressed. At the same time, the inefficiency of the legal system impeded industrial growth, but only conditional on urbanization. That is, the inefficiency of the legal system impeded industrialization only in urban areas. These findings suggest that community-based contract enforcement mechanisms worked in rural areas and that these mechanisms were replaced by the formal legal system as urbanization progressed and community ties declined.

Suggested Citation

  • Nakabayashi, Masaki & Okazaki, Tetsuji, 2011. "The Role of the Courts in Economic Development: The Case of Prewar Japan," PRIMCED Discussion Paper Series 4, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:primdp:4
    Note: This paper was presented at the workshop on “Law and Economic Development: A Historical Perspective” at Utrecht University, at a seminar at the Virtual Center for Advanced Studies in Institution, and at a seminar at Osaka University.
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    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/18975/No4-dp_10_04.pdf
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    References listed on IDEAS

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    1. Okazaki, Tetsuji, 2005. "The role of the merchant coalition in pre-modern Japanese economic development: an historical institutional analysis," Explorations in Economic History, Elsevier, vol. 42(2), pages 184-201, April.
    2. Allen, Franklin & Qian, Jun & Qian, Meijun, 2005. "Law, finance, and economic growth in China," Journal of Financial Economics, Elsevier, vol. 77(1), pages 57-116, July.
    3. Daniel M. Bernhofen & John C. Brown, 2004. "A Direct Test of the Theory of Comparative Advantage: The Case of Japan," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 48-67, February.
    4. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    5. Masahiko Aoki, 2001. "Toward a Comparative Institutional Analysis," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011875, April.
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    Cited by:

    1. Allen, Franklin & Qian, Jun & Zhang, Chenying, 2011. "An Alternative View on Law, Institutions, Finance and Growth," Working Papers 11-64, University of Pennsylvania, Wharton School, Weiss Center.

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    More about this item

    Keywords

    Court; Law; Contract Enforcement; Economic Development; Japan;
    All these keywords.

    JEL classification:

    • K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • N45 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Asia including Middle East

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