Judicial independence and the rule of law in transition

Judicial independence plays a critical role in shaping economic outcomes by reinforcing the credibility of legal and institutional commitments. When judges are free to apply the law without fear of retaliation or political interference, they help stabilize expectations among economic actors. This is particularly vital in what is known as the ""dilemma of the strong state"": while states must be strong enough to enforce property rights, that same strength can make them untrustworthy if unchecked. Judicial independence serves as a credible mechanism for enforcing the government's legal commitments, especially in environments where trust is low and formal promises are easily reversed.

The effectiveness of judicial independence hinges on its de facto reality, not merely its de jure existence. Authoritarian regimes may pass laws guaranteeing judicial autonomy while simultaneously undermining it in practice. Distinguishing between formal legal independence and actual autonomy is therefore essential for assessing its economic impact.

Three channels illustrate how judicial independence fosters economic growth. First, it secures private contracts by ensuring impartial dispute resolution between citizens, which promotes trust, investment, and specialization. Second, it increases investor confidence by serving as a neutral arbiter between governments and private actors, reducing the risk of arbitrary expropriation or policy reversals. Third, in federal systems, an independent judiciary helps arbitrate conflicts between levels of government, enhancing institutional stability and lowering uncertainty. In all cases, credible enforcement of rules by an autonomous judiciary underpins the legal infrastructure necessary for sustained economic development.

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