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

دانشنامه حقوق اقتصادی

Article 5, Volume 21, Issue 5, July 2014   

Document Type: Scientific research

DOI: 10.22067/le.v21i5.48145

Authors

Hassan Heidari^* ; Roghayyeh Alinezhad

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

References

[1]- Baradaran Shoraka, H., and Malekossadati, S. (2008). Good Governance Development Key of Southwest Asian. Quarterly of Rahbord, 1-27 (in Persian). ##

[2]- Colletaz, G., and Hurlin, C. (2006). Threshold Effects of the Public Capital Productivity: An International Panel Smooth Transition Approach. Working Paper, LEO, University of Orleans. ##

[3]- Evrensel, A. (2010). Corruption, growth, and growth volatility. International Review of Economics and Finance, 19, 501–514. ##

[4]- Fok, D., Van Dijk, D., and Franses, P. (2004). A Multi-Level Panel STAR Model for US Manufacturing Sectors. Working Paper, University of Rotterdam. ##

[5]- Gonzalez, A., Terasvirta, T., and Van Dijk, D. (2005). Panel smooth transition regression models. SEE/EFI Working Paper Series in Economics and Finance, No. 604. ##

[6]- Haggard, S., MacIntyre, A., and Tiede, L. (2008). The Rule of Law and Economic Development. Reviews In A dvance, 205-234. ##

[7]- Haggard, S. (2010). The Rule of Law and Economic Growth: Where Are We?. The University of Texas School of Law, Conference on Measuring the Rule of Law March 25-26, 1-43. ##

[8]- Haggard, S., and Tiede, L. (2011). The Rule of Law and Economic Growth: Where are We?. World Development, Vol. 39, No. 5, 673–685. ##

[9]- Hasan, L. (2010). Rule of Law, Legal Development and Economic Growth:Perspectives for Pakistan. MPRA Paper, No. 25565, 1-25. ##

[10]- Hashemi, S.M. (1998). Civil Society and Political System. Legal Research, No. 23-24, 53-146 (in Persian). ##

[11]- Hashemi, S.M. (2001). Fundamental Rights of the Islamic Republic of Iran. Tehran: Dadgostar Publication, Vol. 2, Fifth Edition. (in Persian). ##

[12]- Heidari, H., and Saeidpour, L. (2013). Air Pollution and Economic Growth Nexus in Middle East Countries: An Application of panel Smooth Transition Regression Model. Quarterly OF Energy Economics Review, 10, No. 38, 50-78 (in Persian). ##

[13]- Heidari, H., Alinezhad, R., and Jahangirzadeh, J. (2014). An Investigation of Democracy and Economic Growth Nexus: A Case Study for D-8 Countries. Quarterly of Economic Development and Growth Research, 4, No. 15, 41-60 (in Persian). ##

[14]- Isazadeh, S., and Ahmadzadeh, A. (2009). The Effect of Institutional Factors on Economic Growth with a Focus on Government Institutions (Cross-country Study for The Period 1996-2005). Iranian Economic Researches Quarterly, 13, No. 40, 1-28 (in Persian). ##

[15]- Jude, E. (2010). Financial development and growth: A Panel Smooth Regression Approach. Journal of Economic Development, 35, 15-33. ##

[16]- Komijani, A., and Salatin, P. (2009). The Effect of Governance Governance on Economic Growth in Selected OECD and OPEC Countries. Quarterly of Economic Modeling, 2, No. 2, 1-24 (in Persian). ##

[17]- Komijani, A., and Salatin, P. (2010). The Effect of Governance Quality on Economic Growth in Iran and Neighoboring Countries (Turkey and Pakistan). Management Journal (Researcher), 7, No. 20, 27-41 (in Persian). ##

[18]- Krever, T. (2011). The Legal Turn in Late Development Theory: The Rule of Law and the World Bank's Development Model. Harvard International Law Journal, 52, 288-319. ##

[19]- Levin, A., Lin, C.F. and Chu, C.S.J. (2002). Unit Root Tests in Panel Data: Asymptotic and Finite-sample Properties. Journal of Econometrics, No. 108, 1-24. ##

[20]- Markazmalmiri, A. (2006). Rule of Law: Concepts, Foundations and Perceptions. Tehran: Parliament Research Center, Second Edition. (in Persian). ##

[21]- Mobarak, A., and Azarpeyvand, Z. (2009). Take The Indicators of Good Governance from The Perspective of Islam and Its Impact on Economic Growth. Islamic Economics Quarterly, 9, No. 36, 179-208 (in Persian). ##

[22]- Nadiri, M., and Mohammadi, T. (2011). The Effect of Institutional Structures on Economic Growth Using GMM Dynamic Panel Data. Economic modeling Quarterly, 5, 3(15), 1-24 (in Persian). ##

[23]- Sameti, M., Ranjbar, H., and Mohseni, F. (2011). Analysis of The Impact of Good Governance Indicators on The Human Development Index: The Case of South East Asian Nations (ASEAN). Quarterly of Economic Development and Growth Research, 1, No. 4, 183-223 (in Persian). ##

[24]- Shahabadi, A., and Pourjavan, A. (2010). Governance, Competitiveness and Economic Growth in Selected Countries. Quarterly of Yas Rahbord, No. 22, 129-168 (in Persian). ##

[25]- Shahabadi, A., and Pourjavan, A. (2012). The Relationship Between Governance and Socio-Economic Development Indicators of Selected Countries. Journal of Social Sciences of Literature and Human Sciences Faculty of Ferdowsi University of Mashhad, 9, No. 2, 53-75 (in Persian). ##

[26]- Stolper, A.M., Walker, C.S. and Marczak, J. (2006). Rule of Law, Economic Growth and Prosperity. Report of the Rule of Law Working Group, American Society and Council of the America. New York. ##

[27]- Xu, Y. (2011). An Analysis of the Relationship Between Economic Growth and the Rule of Law: a Lesson fromChina's Experience. VISTAS Education, Economy and Community The University of West London Journal,1(1), 36-48. ##

[28]- Yi Man Li, R., and Lut Li, Y. (2013). Is There a Positive Relationship between Law and Economic Growth? A Paradox in China. Asian Social Science, Vol. 9, No. 9, 19-30. ##