Is the Rule of Law Essential for Economic Growth? Evidence from European Countries

Abstract

This paper aims to measure the influence of human capital, rule of law and protection of property rights on GDP. The research has been inspired by the works of Acemoglu. In this study it has been used a self-structured sample containing eight countries: Germany, Czech Republic, Hungary, Serbia, Italy, the UK, Spain and Sweden. The selection of countries in the sample was intentional. While choosing it, business culture, path dependence and geopolitical situation of the countries have been taken into account. The analysis showed a high correlation of all three observed indices with GDP/cap. In order to determine the relative share of overall indices in economic growth, a graphic representation was used. The regression analysis showed that the change in the IPRI value by one percentage point leads to a more significant positive impact on GDP growth in the group of less developed countries than in the leading developed economies. Although GDP jumps percent are higher in countries with lower IPRI, if observed in real terms they are roughly equal to those recorded in developed countries. This can be explained by the fact that countries with high IPRI have accumulated a higher mass of GDP over time.