Formal contract enforcement and entrepreneurial success of the marginalized

Abstract

Effective contract enforcement is the key for the formation and expansion of business enterprises. Contract enforcement which comes under the purview of the judicial system forms an important constituent of the formal institutional framework. In this paper, we aim to address the question whether better functioning formal judiciary institutions facilitate business in a less-developed country where entrepreneurs often take recourse to informal networks rather than approach formal courts for enforcing contracts. More specifically, we are empirically estimating this relationship between efficiency of formal institutions and various indicators of business performance by utilizing a unique administrative data collected from the judicial authority. We merge this data with the survey of medium- and small-scale industries to find the effect of several court efficiency measures such as duration rate and congestion rate on different business performance indicators.We find that improved court efficiency help entrepreneurs across the board, but the impacts are stronger for disadvantaged groups such as scheduled castes and tribes. © Springer Nature Singapore Pte Ltd. 2019, corrected publication 2019.