Rule of Law and Economic Growth

An Evidence from SAARC

Abstract

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The growth of an economy depends on several factors. ‘Rule of Law’ is one the key factor that has the scope of public’s protection of property and contractual rights. Available studies on growth accounting expose a limitation of literature covering the scope of rule of law. World Bank defines rule of law as how the general residents of a country abide by the rules and have confidence on the prevailing institution that manage it in the country. Usually it is reflected by access to property rights, police efficiencies, quality of contract enforcement, judiciary and the likelihood of control on crime rates. Using World Bank’s annual data from 1999 to 2021 for a pool of SAARC member counties, this study attempts to test whether the rule of law impacts economic growth or not using  panel least squares regression model. It is found that the capital’s impact on GDP is found to be highly significant at 5% level of significance. Similarly the response of labor on GDP is also found to be significant at 5% level of significance. However the index of “rule of law” is not found significant in explaining GDP growth rate. However this doesn’t means that one may not worry about improving rule of law in the economy. It is expected that as SAARC bloc is marred by the issues like poverty, corruption, political instability, etc., therefore vitality of rule of law on economic growth is not captured from the available data. In contrast “rule of law” is found significant.