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Enforcing contracts: Measuring good practices in the judiciary

Author: Doing Business
Publication: Doing Business 2016

Overview

Efficient contract enforcement is essential to economic development and sustained growth. Economies with an efficient judiciary, in which courts can effectively enforce contractual obligations, have more developed credit markets and a higher level of development overall. A stronger judiciary is associated with more rapid growth of small firms. Overall, enhancing the efficiency of the judicial system can improve the business climate, foster innovation, attract foreign direct investment and secure tax revenues. Doing Business 2016 introduces an important change in methodology for the enforcing contracts indicators. While it continues to measure the time and cost to resolve a standardized commercial dispute, it now also tests whether each economy has adopted a series of good practices that promote quality and efficiency in the commercial court system. This case study discusses many of these good practices and concludes that economies with more judicial good practices in place tend to have faster and less costly contract enforcement.

Main Findings

  • Doing Business introduces a new measure in the enforcing contracts indicator set this year, the quality of judicial processes index. This indicator tests whether each economy has implemented a series of good practices in the areas of court structure and proceedings, case management, court automation and alternative dispute resolution. 
  • On average, OECD high-income economies have the largest number of judicial good practices in place as measured by the new index, while Sub-Saharan African economies have the fewest. 
  • Economies that score well on the new index tend to have faster and less costly dispute resolution as measured by the enforcing contracts indicators. 
  • None of the 189 economies covered by Doing Business receive full points on the new index, showing that all economies still have room for improvement in judicial efficiency.