Courts, Networks, and Start-Ups: Institutions Matter for South Asian Small Enterprises
This project will examine the economic consequences of courts on businesses in South Asia. Specifically, it will analyze how courts and other institutional barriers prevent new small and medium entrepreneurs from entering the market and creating jobs. This is especially true for women and people from low castes. In South Asia, small businesses offer the best chance to create new opportunities for millions of job seekers. However, according to most international rankings, South Asian economies rank poorly in terms of institutional arrangements to facilitate business start-up or operation. This weak formal institutional environment can make any type of business contracting costly or even prohibitive. To navigate this environment, existing or emerging businesses use their informal networks, shaped by ethnicity, caste, and gender. South Asia offers examples of how different formal and informal institutions exist side-by-side: deeply rooted informal networks and formal courts plagued by congestion, high legal costs, and delays. Researchers have yet to fully investigate the effect of how courts function, together with the informal networks that support the decision to start or operate a small business in this region. This project fills that gap. It raises important policy questions for other developing countries working to make the formal court system more effective. The research team will aim to -examine how two contract writing institutions (formal district courts and informal caste networks) complement, substitute, and interact with each other to affect people's decision to start and operate a business in India and Bangladesh; -study the quality of district courts in India by constructing an index across Indian districts; -investigate how informal networks and courts interact with and affect entrepreneurship; -provide quantitative evidence about the types of entrepreneurs who would benefit the most from improvements in the formal system and how the improvements could help women and marginalized castes; -identify qualitative factors that affect contract writing by comparing two case studies from the leather sector in Kanpur, India, and from the garment sector in Dhaka, Bangladesh; and -raise awareness of the importance of courts and networks by organizing workshops among policy circles and NGOs, and participating in academic conferences. The Indian Institute of Technology Kanpur and the University of Calcutta will partner on the project to produce a courts index and a series of recommendations.