LEGAL INSTITUTIONS, RULE OF LAW AND ECONOMIC GROWTH

Abstract

This paper investigates the relationship between quality of legal institutions and economic growth of countries. Considering the importance of incorporating institutional analysis in the study of countries’ economic performance, the main objective of this research is to investigate how the quality level of current legal institutions in countries affects their economic results. Therefore, it requires an empirical methodology and a sample of 118 countries in a period of 15 years, from 2002 to 2016. This work developed an econometric model capable of capturing the effects of an improvement — positive shock — on the quality of legal institutions over the future trajectory of countries’ economic performance. Moreover, it was observed how these effects vary according to the income level of those countries. The results suggest that improvements in the quality of legal institutions positively affect economic performance, contributing to a trajectory of economic growth and prosperity in countries. These positive effects of the level of legal institutional quality tend to be more relevant and significant in low-income countries with relatively weaker institutions.