An Investigation of the Impact of Institutional Variable of Rule of Law on Economic Growth in D-8 Countries

Document Type : Scientific research

Authors

• Hassan Heidari
• Roghayyeh Alinezhad

https://doi.org/10.22067/le.v21i5.48145

Abstract

The main challenge of developing countries, is achieving growth and development. Review of economic growth literature shows that the quality of institutions and social infrastructure are important factors that influence the economic growth and development. Also many analysts believe that between institutional factors, the rule of law is one of the most elements for appropriate system for investment and economic growth. This study aims to investigate the impact of institutional variable of rule of law on economic growth in D-8 countries over the period 1996-2012. For this purpose, the paper uses the Panel Smooth Transition Regression (PSTR) model. The estimation results of model reject the linearity hypothesis, and estimate a model with two regimes that gives a threshold at rule of law of -0.511 for under review countries. The study results indicate rule of law index has a positive impact on economic growth that its impact is increased in the second regime. Moreover the results indicate education expenditures and agricultural raw materials exports variables have a negative impact in first regime and positive impact in second regime on economic growth. Also other results indicate the financial development index and openness index have a positive impact and inflation rate has a negative impact on economic growth in two regimes.

Keywords

• Institutional Variables
• Rule of Law
• Economic Growth
• Panel Smooth Transition Regression (PSTR) Model

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