Justice and the cost of doing business in the Philippines

Abstract

The performance of the judicial system has been thrown into the limelight as business surveys point to its performance as one of the main obstacles and disincentives to doing business in the Philippines. The channels through which judicial decisions may affect business behavior are straightforward: increased uncertainty and high costs. To quantify the perceived effects, a survey of 320 of the top 7000 corporations in the Philippines was conducted in 2001. Our findings show that governance problems are at least as important as economic or financial problems in doing business. Of more direct relevance to the judiciary, difficulties in settling legal conflicts were among the most frequently cited factor affecting business. Further, the current level of functioning of the legal system has an economic impact equivalent to foregoing at least 6-11 percent of total investment in the economy and foregoing at least one-fourth to one-half of a percentage point (0.25-0.46) of GDP growth annually, or an annual loss amounting to between Php7 billion and Php13 billion in 1999 alone. These are significant and recurring economic losses attributable to the nature and functioning of institutions and form a strong case for judicial reform.

JEL classification: K41, L14, D23