Legal Reform, Externalities and Economic Development: Measuring the Impact of Legal Aid on Poor Women in Ecuador

The authors assisted the World Bank in conducting an economic evaluation of the effectiveness of legal aid clinics for poor women in Ecuador. The legal aid clinics were a small part of a project to promote legal and judicial reform (LJR) in Ecuador, in turn part of a World Bank initiative to promote such reforms throughout the developing world. World Bank support for the clinics was ending just as we began our work.

Measuring the effectiveness of the clinics presented two challenges: deciding what to measure and finding a practical way to measure it. LJR is thought to contribute to economic growth and the reduction of poverty. Reform is also thought to increase the quality of life, because people place an independent value on “the rule of law.” We need to assess the performance of the legal clinics against these goals. The literature on LJR in developing nations largely ignores the literature on microeconomic analysis of law, and hence lacks a framework for linking legal reform to economic growth at the level of microeconomic agents. Our first task is to apply economic learning to the problem of legal reform—that is, to identify the microeconomic foundations of the rule of law as they apply here.

Once accomplished, this model points clearly to what should be measured in evaluating reforms: the positive externality of reforms on expectations of what courts will do.  The second challenge—measurement—is conducted under typical real world constraints. The clinics did not collect or preserve ideal data, an evaluation component was not built into the project, funds for data collection and analysis were limited, and the objectives we ultimately decided to measure were not necessarily those that the clinics set out to achieve.

In light of these difficulties, our econometric results are useful chiefly as a demonstration that empirical evaluation of the contributions of LJR to economic development is possible. We were not able to measure more than a hint of the most important benefits of the clinics—their spillover impact on non-participants. But even without this potentially very large positive externality, the clinics appear to have made a contribution to the economic well-being of poor women in Ecuador.

In the future, legal and judicial reform projects should be undertaken not merely to achieve abstract procedural norms derived from western legal experience, but to promote economic development by capitalizing on the law’s potential leverage or spillover effects on the incentives of economic agents.