The impact of the rule of law on economic growth in the context of institutional economics: A study on European Union member and candidate countries

Historically, economic growth has been an important macroeconomic goal for all countries. However, a sustainable and functional rule of law for the well-being of society is another non-economic objective that may nevertheless be related to the economy. Respect for the rule of law as one of the core values of the European Union (EU) is essential for the functioning of the EU. It is a precondition for the protection of all other fundamental values and democracy. The Union believes that respect for the rule of law, in addition to its intrinsic value, is vital for the functioning of a sustainable social market economy. Therefore, the motivation for this study is to explore and better understand the economic importance of these values. The main objective of the study is to analyse the impact of the rule of law on economic growth in EU member and candidate countries. For this purpose, panel data analysis techniques are used with the dataset covering the period 2015-2024. In the analysis performed with Eviews 12 software, the rule of law variable was obtained from the Rule of Law Index created by the World Justice Project and the economic growth variable was obtained from the World Bank database. As a result of the analysis, it was observed that the series have horizontal cross-sectional dependence and have a heterogeneous structure. For this reason, stationarity was examined with second generation unit root tests. Bai-Ng (2004), Pesaran (2007) and Im, Pesaran and Shin (2003) tests were used to test stationarity. The findings indicate that the series do not contain unit roots at different levels of stationarity. Then, the effect of the rule of law on economic growth was analysed with the panel ARDL test and the findings indicate that there is a negative effect for both EU candidate countries and EU member states in the short and long run. In other words, the effect of the rule of law on economic growth is negative for the analysed periods and groups. Key words: Rule of law, economic growth, European Union, panel data analysis