More laws, more growth? Evidence from U.S. states

This paper analyzes the conditions under which more legislation contributes to economic growth. In the context of U.S. states, we apply natural language processing tools to measure legislative flows for the years 1965-2012. We implement a novel shift-share design for text data, where the instrument for legislation is leaveone-out legal-topic flows interacted with pre-treatment legal-topic shares. We find that at the margin, higher legislative output causes more economic growth. Consistent with more complete laws reducing ex post hold-up, we find that the effect is driven by the use of contingent clauses, is largest in sectors with high relationshipspecific investments, and is increasing with local economic uncertainty