Court Quality and Economic Resilience
60 Pages Posted: 26 Feb 2020 Last revised: 7 Dec 2020
Date Written: December 7, 2020
We investigate how courts affect the transmission of shocks across firms. Using novel inter-firm wire transfer data, we find that suppliers exposed to natural disasters pass this shock to their customers particularly when the court system is congested. Evidence suggests that congested courts amplify spillovers through the contracting frictions that customers face with new suppliers and creditors. Subsequently, customers vertically integrate the production of affected inputs and obtain liquidity by selling their accounts receivables. Our results highlight the importance of institutions in facilitating economic resilience.
Keywords: courts, economic fragility, contract enforcement, networks, propagation
JEL Classification: D02, E02, L14, E23, E32
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