MEASURING THE IMPACT OF REGULATORY GUALITY AND TRADEOPENNESS ON ECONOMIC GROWTH IN EUROPEAN COUNTRIES:EVIDENCE FROM DYNAMIC PANEL ESTIMATORS

Abstract

The main objective of this study is to determine the impact of regulatory quality as an indicator of institutional quality and the impact of trade openness as a proxy for the trade dimension of globalization on economic growth in European countries.
For this purpose, a panel data set covering 38 countries between 2002 and 2022 is used, GDP per capita growth is taken as the dependent variable, and two control variables are selected, namely gross fixed capital formation and foreign direct investment. To ensure the methodological robustness of the results, a comparative analysis of three panel estimators within a dynamic specification, namely Fixed Effects, System GMM, and Common Correlated Effects, is used. According to the results, regulatory quality has a statistically significant positive impact on economic growth for European economies in all models. Therefore, it can be interpreted as an increase in the quality of regulators being associated with a reduction in uncertainty and a more productive increase in economic activity. The positive and robust results of trade openness across models also indicate the importance of integration into the global economic process through the trade channel to support economic growth. In conclusion, the results of the study indicate the importance of strengthening regulatory institutions and expanding trade openness for sustainable economic development in European countries.