CONGESTION IN THE JUSTICE SYSTEM AND PRIVATE INVESTMENTS

Authors

  • Moses Marang'a Post Graduate Student
  • Duncan Ouma Lecturer
  • George Kosimbei Lecturer

DOI:

https://doi.org/10.47604/jpid.659

Keywords:

Congestion, Private investments

Abstract

Purpose: Public goods and services play a vital role in a given economy. Most importantly, optimal supply of public goods and services is desirable. The justice system services are public services that, as argued by most economists and governments, would be expected to spur the growth of private investment. However, these services are prone to congestion which may influence their supply and level of use. This study investigated the effect of congestion in the justice system on private investments growth in Kenya.

Methodology: Drawing from the modified neoclassical theory of investment, a government service characterized by congestion was integrated as an input in the firm's production function to derive a structural model for private investment growth. Utilizing data for the period 1960 to 2016, two-stage least square (2SLS) instrumental variable (IV) method was used for estimation.

Results: The study found that congestion in the justice system reduces growth of private investment. This implies that congestion increases firm's adjustment costs, decrease their profitability and consequently reduces capital accumulation.

Recommendation: To enhance the growth of private investments, we recommend reduction of congestion in the justice system to the possible minimum. This can be achieved by upscaling resolution of disputes out of court to reduce inflow of new caseload. Consequently, the waiting period between hearings and mentions for existing cases would reduce translating to speedy conclusion of cases. The justice system institutions with involvement of litigants and their legal representatives should continuously undertake activities targeting rapid finalization of old cases, but not at the expense of inbound demand for justice. Consequently, congestion would diminish creating a legal and contracting environment characterized by minimal delay hence supporting accumulation of capital.

Downloads

Download data is not yet available.

Author Biographies

Moses Marang'a, Post Graduate Student

Kenyatta University

Duncan Ouma, Lecturer

Kenyatta University, Kenya & Macroeconomic

Policy Division-UNECA, Ethiopia

George Kosimbei, Lecturer

Kenyatta University

References

Acemoglu, D., & Johnson, S. (2005). Unbundling institutions. Journal of Political Economy 113(5), 949-995.
Barro, R., & Sala-i-Martin, X. (2004). Economic Growth. 2nd edition. MIT Press, Cambridge, MA.
Brooks, C. (2008). Introductory Econometrics for Finance. 2nd Edition. Cambridge University Press, New York.
Chemin, M. (2012). Does court speed shape economic activity? Evidence from court reform in India. Journal of Law, Economics & Organization, 28(3), 460-485.
(2009). The Impact of the judiciary on entrepreneurship: Evaluation of Pakistan's access to justice programme. Journal of Public Economics, 93(1-2), 114-125.
(2004). Does the quality of the Judiciary shape economic activity? Evidence from India. Department of Economics, LSE.
Dao, M. (2008). The impact of investment climate indicators on gross capital formation in developing countries. Journal of Developing Areas, 42(1), 155-163.
Eicher, T. S., & Turnovsky, S. J. (2000). Scale, congestion and growth. Economica, 67, 325-346.
García-Posada, M., & Mora-Sanguinetti, J. S. (2015). Does average size matter? Court enforcement, business demography and firm growth. Journal of small business economics 44(3), 639-669.
García-Posada, M., & Mora-Sanguinetti, J. S. (2014). Entrepreneurship and enforcement institutions. Working Paper No. 1405 of 2014, Bank of Spain.
Giacommelli, S., & Menon, C. (2013). Firm size and judicial efficiency: Evidence from the neighbors' Court. Working paper Number 898, Bank of Italy.
Irmen, A., & Kuehnel, J. (2009). Productive government expenditure and economic growth. Journal of Economic Surveys, 23, 692-733.
Jorgenson, D. W. (1963). Capital theory and investment behavior. American Economic Review. 53(2), 247-259.
Jorgenson, D. W. (1967). The theory of investment behavior, In R. Ferber (Ed.), Determinants of investment behavior. No. 18, Colombia University Press, NY.
Jorgenson, D. W., & Hall, R. (1971). Application of the theory of optimum capital accumulation. In G. from (ed.), Tax incentives and capital spending. The Brookings institute, Washington, D.C.
Judiciary. (2014). Judiciary Strategic Plan 2014-2018. Nairobi, Kenya: The Judiciary
Judiciary. (2015). State of the Judiciary and Administration of Justice. Annual report 2013-2014. Nairobi, Kenya: The Judiciary.
Judiciary. (2017a). Sustaining Judiciary Transformation Strategy (SJT) Nairobi, Kenya: The Judiciary.
Judiciary. (2017b). State of the Judiciary and Administration of Justice. Annual report 2016-2017. Nairobi, Kenya: The Judiciary.
Karumba, M. M. (2009). Impact of institutional factors and liberalization policies on private investment in Kenya. Unpublished master's thesis, Kenyatta University, Kenya.
Kiprop, S. K. (2013). Effect of budget deficit and corruption on private investment in developing countries: A panel data analysis. African Journal of Buss. Management, 7(27), 2720-2732.
Kiptui, M. (2005). Impact of fiscal policy on private investment in Kenya. Institute of Policy Analysis and Research, Discussion Paper No.066/2005. IPAR. Nairobi.
Klerman, D. M. (2006). Legal Infrastructure, judicial independence, and economic development. McGeorge Global Bus. & Dev. LJ Vol 19, 427
Kwiatkowski, D., Phillips, P. C., Schmidt, P., & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative. Journal of Econometrics, 54(1-3), 159-178.
Kuehnel, J. (2010). Essays on the theory of productive government activity and economic growth. University of Heidelberg.
Maja, B. M., & Arnab, K. H. (2004). The problem of court congestion: Evidence from Indian lower courts. Discussion paper on development policy No. 88, Center for Development Research.
Mbaye, E. Z. (2014). Determinants of domestic private investments in Kenya. Unpublished Master's Thesis, University of Nairobi, Nairobi, Kenya.
Menjo, K. I., & Kotut, C. S. (2012). Effects of fiscal policy on private investment and economic growth in Kenya. Journal of Econ. & Sustainable Development, 3(7).
Messick, R. (1999). Judicial reform and economic development: A survey of the issues. World Bank Research Observer, 14(1), 117-136.
Mundia, R. K. (2014). Analysis of determinants of private investment in Kenya, Unpublished Master's Thesis, University of Nairobi, Nairobi, Kenya.
Murray, M. P. (2006). Avoiding invalid instruments and coping with weak instruments, Journal of Economic Perspectives, 20 (4), 111-132
Mora-Sanguinetti, J. S., Martinez-Matute M., & Garcia-Posada, M. (2016). Credit, crisis and contract enforcement. Working papers, Bank of Spain, Madrid.
Mora-Sanguinetti, J. S. (2012). Is judicial inefficacy increasing the weight of house property market in Spain? Journal of the Spanish Economic Association, 3(3), 339-365.
Njuru, S. G., Ombuki, C.O., Wawire, N. W. & Okeri, S. (2014). Effects of fiscal policy on private investment in Kenya. Research Journali's Journal of Econ, 2, 2347-8233.
Ott, I., Soretz, S. (2007). Governmental activity and private capital adjustment. Journal of Managerial Economics, 2, 28-47.
Palumbo, G., Giupponi G., Nunziata, L., & Sanguinetti, J. M. (2013). Judicial performance and its determinants: a cross-Country perspective. OECD.
Pintea, M., & Turnovsky, S. J. (2006). Congestion and fiscal policy in a two-sector economy: A quantitative assessment. Computational Economics, 28, 179-209.
Ponticelli, J., & Alencar, L. S. (2016). Court enforcement and firm productivity: Evidence from a bankruptcy reform in Brazil. Working Paper, No 425. Brazil Central Bank.
Posada, M., & Sanguinetti, J. S. (2013). Firm size and judicial efficacy: Local level evidence in Spain. Madrid, Spain: The Bank of Spain.
Republic of Kenya. (1967). Judicial Department Report. Nairobi, Kenya: The Government Printer.
Republic of Kenya. (Various Issues). Judicial Department Reports. Nairobi, Kenya: The Government Printer.
(Various Issues). Economic Survey. Nairobi, Kenya: The KNBS.
Republic of Kenya. (2007). Kenya Vision 2030: A globally competitive and prosperous Kenya. Nairobi, Kenya: The Government Printer.
Republic of Kenya. (2010). The Constitution of Kenya. Laws of Kenya, Nairobi, Kenya: The National Council for Law Reporting.
Republic of Kenya. (2017). Economic Survey 2017. Nairobi, Kenya: The KNBS.
Stiglitz, J. E. (2001). Redefining the role of the state. World Economics, 2(3).
World Bank. (2001). World development report. Building institutions for markets. New York: World Bank and Oxford University Press.
World Bank. (2017). Gross fixed capital formation, private sector [Data File]. World Bank. Accessed at http://data.worldbank.org/indicator/ne.gdi.fprv.zs.

Downloads

Published

2018-07-09

How to Cite

Marang'a, M., Ouma, D., & Kosimbei, G. (2018). CONGESTION IN THE JUSTICE SYSTEM AND PRIVATE INVESTMENTS. Journal of Poverty, Investment and Development, 3(1), 1 – 19. https://doi.org/10.47604/jpid.659

Issue

Section

Articles