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A systematic review on the evidence of the impact on investment rates of changes in the enforcement of contracts

What do we want to know?

This systematic review focuses on the evidence about one specific causal mechanism: from better enforcement of contracts to higher rates of capital accumulation.

What did we find?

Cross-country evidence seems to dominate the relevant body of research (more than half of the quantitative studies). This is reflected in the geographic scope of the studies as well as the units of analysis. The prevailing research designs are cross-section and panel data regressions, with estimation methods customised to the specificities of data sets, variables, and/or reflecting trends in econometric ‘best practice’. The study of the microeconomics of contract enforcement and investment can be said to be seriously underdeveloped in the literature. 

What are the implications?

Overall, the evidence gathered through this systematic review provides some support for the claim that more effective contract enforcement promotes higher levels of investment, but it is weak.

Based on a ‘quick and rough’ synthesis of the literature one might be tempted to conclude that institutional change that fosters reliability of contracts (in some sense) will be likely to be rewarded with greater additions to a society’s stock of capital.

This quick and rough impression is probably what policy makers (including some who have been sponsors of a good part of this literature) take away from casual observation of the research that has developed in the last couple of decades.

However, the suspicion of publication bias in this literature is quite strong and fed by the observation that those few studies that do not find a ‘positive’ are constructed to make the negative or null the ‘expected’ result, or do not have contract enforcement per se as the single key intervention in their empirical analysis.

Moreover, in some of these cases the ambiguity or negative results are inferred by us, the reviewers, and not stressed by the authors. This means that there is ample scope, and need, to enhance the evidentiary basis for a ‘conventional wisdom’ hypothesis that has important policy implications but currently has only weak support from the evidence. 

How did we get these results?

Initially, inclusion-exclusion criteria were applied to the results of the comprehensive and systematic searches of relevant scholarly databases and search engines, and to papers identified by forward and backward citation tracking. To assess the quality of the included studies, the review team used a critical appraisal approach based on a multidimensional concept of quality in research. This approach covers quality of reporting, methodological rigour, conceptual depth and breadth, and relevance.

The EPPI Centre reference number for this report is 2012.

This report should be cited as:
Aboal D, Noya N, Rius A (2012) A systematic review on the evidence of the impact on investment rates of changes in the enforcement of contracts. London: EPPI Centre, Social Science Research Unit, Institute of Education, University of London.
ISBN: 978-1-907345-41-8

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