To reduce the enormous backlog of court cases, Pakistan enacted the “Access to Justice Programme” in 2002. Case-flow management techniques were taught to judges in 6 pilot districts out of 117, with the aim of facilitating rapid case disposal. Beyond this immediate aim, a more efficient judiciary can also have important economic effects by, for example, providing more secure property rights and better enforcement of creditor rights. Greater security of property rights increases the return from investment, which encourages entrepreneurship, and the better enforcement of creditor rights makes it easier for banks to lend to current and future entrepreneurs. In short, one would predict an increase in entrepreneurship as a result of a more efficient judiciary. Did this prediction come true in Pakistan?
A recent study by Matthieu Chemin (2009, Journal of Public Economics) finds that in the year following the reform and in the affected districts, the legal situation improved substantially with judges disposing of 25% more cases; also, investors reported being much more confident of obtaining bank loans. As a consequence, the proportion of the unemployed applying for permits or seeking land, buildings or machinery to establish enterprises tripled. This led to a 30% increase in the transition from being unemployed to being an employer or self-employed. A similar increase occurred from being an employee to being an employer or self-employed.
The study concludes that the reform was worth the effort: it cost $350 million or 0.1% of Pakistan’s 2002 GDP and the estimated economic benefit was equal to 0.5% of GDP. While there is no certainty that what worked in Pakistan will work elsewhere too, I think the study makes it clear that it would be worth a try.