The effect of judicial independence on entrepreneurship in the US states

- I evaluate the effect that judicial independence has on entrepreneurial activity in the US.
- Merit selection of both Supreme Court and intermediate appellate courts increase entrepreneurship.
- Retention elections and reappointment of Supreme Court justices increase entrepreneurship.
- The method of selecting a Supreme Court chief justice and retention of intermediate appellate judges has a smaller impact on entrepreneurship.
- Overall, greater judicial independence would appear to increase entrepreneurial activity.

The relationship between institutional quality, entrepreneurship, and economic growth has been well documented within the literature. However, much less work has been done regarding judicial independence and how this affects, specifically, entrepreneurial activity. Therefore, this paper attempts to fill that gap by exploiting the differences in judicial independence that exist between the US states and empirically evaluating how this affects entrepreneurship. Overall, the results suggest that the method of selecting and retaining justices of both courts of last resort and intermediate appellate courts has a significant and direct effect on entrepreneurial activity, though the latter result is somewhat less robust. The presence of judicial nominating and retention commissions also has a significant and direct effect. Further, although somewhat weaker, the method of selecting the chief justice of a state court of last resort would also appear to have an impact on entrepreneurship. These results are robust to a number of specifications.