Effect of dispensation of justice and provision of security on private investments

Abstract

Most economists have argued that government institutions play a crucial role on performance of private investment. One such institution is the justice system that dispenses justice and provides security. There has been concerns that provision of these services has not been optimal for most developing economies and this could be affecting the growth of private investments. This paper investigated whether dispensation of justice and provision of security had effects on growth of private investments in Kenya. This was realized by estimating a structural model using instrumental variable method and data for the period 1960 to 2016. The findings were that enhanced dispensation of justice spurs the growth of private investments while insecurity hampers the growth. Based on these findings, governments policies to support the growth of private investments should transcend interventions on macroeconomic aggregates and encompass interventions in the justice system. This can be achieved by enhancing the resolution of cases for instance through increased mediation and arbitration of disputes out of court, use of transcription services in courts and establishment of a legal framework to guide minimization of case adjournments. Further, up scaling the use of technology in crime detection and surveillance and setting time limits for completion of criminal investigations and adducing of relevant evidence and expert reports in courts, would aid in controlling and reducing crime. Once dispensation of justice is enhanced and crime is reduced, a favourable environment for the growth of private investments would ensue.