RULE OF LAW AND ECONOMIC GROWTH: EVIDENCES FROM SOUTH EAST EUROPE

Abstract

The rule of law is a principle that promotes the limitation of arbitrary power. Although there is no universal definition in the literature, this notion encompasses several important topics, including personal security, property rights security, government checks, and corruption control, among others. There has recently been a rising body of research demonstrating the importance of the rule of law in maintaining economic development, fostering justice, and enhancing democratic capacities in nations around the world. Our paper focuses on understanding the importance of rule of law for economic prosperity in the countries that geographically belong to the region of South East Europe. In our analysis, we include the following countries: Albania, Bosnia and Hercegovina, Bulgaria, Croatia, Greece, Montenegro, North Macedonia, Romania, Serbia and Slovenia. First, we investigate five different rule of law indicators present in the institutional economics literature. Next, we evaluate the influence of rule of law on economic prosperity in South East Europe from 1996 to 2020 in the second half of the article. Our hypothesis that stronger adherence to rule of law principles stimulates economic growth in this region is supported by the regression model results.