Judicial Power as a Macroeconomic Variable: The Economic Impact of Judicial Efficiency, Independence, and Institutional Quality

This paper introduces the concept of Sovereign Judicial Risk (SJR) and examines whether international judicial and arbitral decisions can function as independent macroeconomic variables capable of influencing foreign exchange markets. While existing literature extensively analyzes political risk, sovereign debt risk, and institutional quality, little attention has been given to the direct economic consequences of major judicial decisions. The study proposes a new theoretical framework linking judicial outcomes to exchange rate movements through investor expectations, sovereign credibility, capital flows, and risk pricing mechanisms. Using selected case studies, including sovereign debt litigation and international investment arbitration awards, the paper explores the potential relationship between judicial shocks and currency performance. It further develops a preliminary Sovereign Judicial Risk Index (SJR Index) designed to quantify the economic significance of judicial decisions. The paper argues that judicial risk should be recognized as a distinct category within sovereign risk analysis and proposes avenues for future empirical testing and policy application. By bridging law, finance, and macroeconomics, this study seeks to contribute to the emerging field of Law and Macroeconomics.