Does Institutional Framework Matter for Economic Specialization? Disaggregated Province-Level Evidence from Spain

We exploit historical differences in legal education and foral Law to consistently estimate the contribution of judicial efficacy to the economic specialization across Spanish provinces in the period 1995-2014. The... [ view full abstract ]

We exploit historical differences in legal education and foral Law to consistently estimate the contribution of judicial efficacy to the economic specialization across Spanish provinces in the period 1995-2014. The distribution of economic activity in Spain as of today shows a strong pattern of geographical specialization. Regions least specialized in manufacturing and oriented to services sectors in the South are confronted to highly industrialized regions in the North. We construct province-level congestion rates across labor, administrative and civil jurisdiction from local court-level data and estimate the effect of judicial efficacy on the share of manufacturing and services in the total output. Using a variety of estimation techniques, the evidence unveils strong and persistent effect of judicial efficacy on province-level economic specialization. Provinces with the historical experience of foral law, with greater density of law professors and in closer proximity to 1845 law school district are significantly more likely to experience more efficient enforcement institutions to the present day. Greater judicial efficacy facilitates the specialization in high-productivity manufacturing while greater judicial inefficacy encourages service-intensive specialization. The effect of the judicial efficacy on economic specialization does not depend on confounders, holds across a batter of specification checks and appears to be causal.