THE RULE OF LAW AND ECONOMIC GROWTH: EVIDENCE FROM SOUTHEAST 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 property rights security, government checks, and corruption control, among others. There has recently been a rising body of research showing the importance of the rule of law in supporting economic development, fostering justice, and enhancing democratic abilities in nations around the world. The paper focuses on understanding the importance of the rule of law for economic prosperity in the countries that geographically belong to the region of Southeast Europe. Consequently, the following countries are included in the analysis: Albania, Bosnia and Hercegovina, Bulgaria, Croatia, Greece, Kosovo, Montenegro, North Macedonia, Romania, Serbia, and Slovenia. First, we look at the relationship between the various rule of law indicators in the countries we selected. Three key indicators of the rule of law are examined: the World Bank’s rule of law index, the Heritage Foundation’s rule of law index, and the Freedom House’s rule of law index. Even though the philosophy and method behind these competing measures of rule of law differ, the analysis revealed a high correlation between the various indicators. In the second half of the paper, we evaluate the influence of the rule of law on economic prosperity in Southeast Europe from 1996 to 2020. Our hypothesis is that stronger adherence to rule of law principle stimulates economic growth in this region. This hypothesis is supported by the regression model results.