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Contract enforcement, investment and growth in Uruguay since 1870

Author

Listed:
  • Sebastián Fleitas

    (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economí­a)

  • Andrés Rius

    (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economí­a)

  • Carolina Román

    (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economí­a)

  • Henry Willebald

    (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economí­a)

Abstract

Institutions and their quality are central concepts in the recent development and institutional economics literatures. Our hypothesis is that inadequate contract enforcement has hindered investment and, in consequence, indirectly has had a negative effect on Uruguay's long-term growth performance. We first review the main concepts and the approaches to define and measure the quality of contract enforcement. We then introduce one measure that has the advantages of being measurable into the past and not depending on subjective judgments; namely, the "contract intensive money" (CIM)indicator proposed by Clague et al. (1999). Using our long series for the CIM indicator, and extending key macroeconomic variables backwards to 1870, we are able to estimate a structural model to explore the plausibility of our hypothesis. In the estimation, based on the seemingly unrelated regressions (SUR) method, we find support for the thesis that the quality of contract enforcement influences growth through its impact on investment. Put differently, our results suggest that poor contract enforcement played a significant role at the root of Uruguay's underperformance, and in its experience of (relative) long-run decline.

Suggested Citation

  • Sebastián Fleitas & Andrés Rius & Carolina Román & Henry Willebald, 2013. "Contract enforcement, investment and growth in Uruguay since 1870," Documentos de Trabajo (working papers) 13-01, Instituto de Economía - IECON.
    • Handle: RePEc:ulr:wpaper:dt-01-13
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    File URL: https://hdl.handle.net/20.500.12008/4237
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    Cited by:

    1. Henry Willebald, 2014. "Land-abundance, frontier expansion and the hypothesis of appropriability revisited from an historical perspective: settler economies during the First Globalization," Documentos de Trabajo (working papers) 14-14, Instituto de Economía - IECON.
    2. Frédéric Marty, 2016. "Professions réglementées du droit et aiguillon concurrentiel: réflexions sur la loi du 6 août 2015 pour la croissance, l'activité et l'égalité des chances économiques," GREDEG Working Papers 2016-12, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    3. Silvana Sandonato & Henry Willebald, 2018. "Natural Capital, Domestic Product and Proximate Causes of Economic Growth: Uruguay in the Long Run, 1870–2014," Sustainability, MDPI, vol. 10(3), pages 1-26, March.

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    More about this item

    Keywords

    Contract Enforcement; Contract intensive money; investment; Uruguay;
    All these keywords.

    JEL classification:

    • N16 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Latin America; Caribbean
    • N26 - Economic History - - Financial Markets and Institutions - - - Latin America; Caribbean
    • N46 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Latin America; Caribbean
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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