The impact of the surplus value rate and rule of law on economic performance

Figures & data

Figure 1. Conceptual framework. Note: The scale of credit provided by banks is relevant to economic performance, but this is beyond the scope of this study and are thus excluded. Arrows indicate the destination of the influence. Source: Prepared by the author.

Table 1. Target countries and legal origins.

English legal origin

Australia, Bahrain, Bangladesh, Botswana, Canada, Cyprus, Ghana, Hong Kong, India, Ireland, Israel, Jamaica, Kenya, Malaysia, Namibia, New Zealand, Nigeria, Pakistan, Saudi Arabia, Singapore, South Africa, Sri Lanka, Thailand, Trinidad and Tobago, United Arab Emirates, United States, United Kingdom, Zambia

French legal origin

Argentina, Belgium, Brazil, Chile, Colombia, Cote d'Ivoire, Ecuador, Egypt, France, Greece, Indonesia, Italy, Jordan, Kazakhstan, Kuwait, Lebanon, Lithuania, Luxembourg, Mauritius, Mexico, Morocco, Netherlands, Oman, Panama, Peru, Philippines, Portugal, Qatar, Romania, Russia, Spain, Tunisia, Turkey, Ukraine, Vietnam

German legal origin

Austria, Bulgaria, China, Croatia, Czech Republic, Estonia, Germany, Hungary, Japan, Korea, Latvia, Poland, Slovak Republic, Slovenia, Switzerland

Scandinavian legal origin

Denmark, Finland, Norway, Sweden

Note: There are 82 target countries; the data cover 2004 to 2017. Source: The classification of legal origins is based on La Porta et al. (2008).

Table 2. Definitions of variables.

Variable	Definition	Source
Surplus	Rate of surplus value.	GDP: World Bank, World Development Indicators
	Surplus = (GDP − Labour cost)/labour cost (%)	Labour cost: International Labour Organization (ILO), Sustainable Development Goals (SDG) indicators
Rule of law	Indicator of the rule of law.	Worldwide Governance Indicators (WGI)
	Values range from −2.5 to 2.5, with higher values when the rule of law is more prevalent in society
GDP/Capita	Ln (GDP per capita (PPP) adjusted) (USD)	World Bank, World Development Indicators
English	English legal origin (Dummy variable)	La Porta et al. (2008)
	1 if legal origin = English, otherwise 0
French	French legal origin (Dummy variable)	La Porta et al. (2008)
	1 if legal origin = French, otherwise 0
German	German legal origin (Dummy variable)	La Porta et al. (2008)
	1 if legal origin = German, otherwise 0
Scandinavian	Scandinavian legal origin (Dummy variable)	La Porta et al. (2008)
	1 if legal origin = Scandinavian, otherwise 0
OECD	OECD members countries (Dummy variable)	OECD website
	1 if legal origin = OECD member, otherwise 0
Bank	Bank = ln (Private credit by deposit money banks/GDP)	World Bank, World Development Indicators
Unemployment	Unemployment rate (%)	World Bank, World Development Indicators
Growth	Annual growth rate of GDP (%)	IMF, World Economic Outlook Database, April 2020
Industry	Added value of manufacturing (including mining, construction, electricity, water, and gas) / GDP (%)	World Bank, World Development Indicators

Note: There are 82 target countries; the data cover 2004 to 2017. Missing values are supplemented with the data from the previous year. However, if the data for the previous year were unavailable, then the data for the subsequent one year later are used. If there are no data for either the previous or subsequent year, it is considered a missing value. Source: Prepared by the author.

Table 3. Descriptive statistics.

Variable	Mean	Median	S.D.	Min	Max	95 CI	Obs.
Surplus	116.030	96.850	68.471	41.243	571.141	3.965	1148
Rule of law	0.489	0.429	0.922	−1.480	2.100	0.053	1148
GDP/Capita	9.864	10.034	0.912	7.390	11.861	0.053	1148
English	0.341	0.000	0.474	0.000	1.000	0.027	1148
French	0.427	0.000	0.495	0.000	1.000	0.029	1148
German	0.183	0.000	0.387	0.000	1.000	0.022	1148
Scandinavian	0.049	0.000	0.216	0.000	1.000	0.012	1148
OECD	0.439	0.000	0.496	0.000	1.000	0.029	1148
Bank	4.053	4.141	0.712	−1.681	5.542	0.042	1128
Unemployment	7.374	6.211	4.890	0.140	29.576	0.283	1148
Growth	3.600	3.512	3.796	−15.100	26.170	0.220	1148
Industry	28.800	26.796	10.829	6.717	74.812	0.630	1136

Note: S.D. indicates standard deviation. 95 CI; 95% confidence interval. Obs. is the number of observations. These data are unbalanced panel data, including missing values. Source: Compiled by the author.

Table 4. Unit root tests of the main variables.

	Levin, Lin &	ADF-Fisher
Variable	Chu test	test
Surplus	−5.212***	213.380***
Rule of law	−3.699***	213.036***
GDP/Capita	−9.268***	202.171**
Bank	−11.209***	270.516***

Note. *, **, and *** indicate significance at the 10%, 5% and 1% levels, respectively. The values are test statistics. The maximum lag is an automatic selection based on the SIC between 0 and 2. The estimation includes a constant term. Source: Calculated by the author.

Figure 2. Relationship between GDP/Capita and rate of surplus value and between GDP/Capita and rule of law. Note: GDP/Capita is the natural logarithm. For the classification of legal origins, refer to La Porta et al. (2008). The figure uses the arithmetic mean from 2004 to 2017 for each country. The number of observations was 82. Source: Compiled by the author.

Table 5. Estimation results (Eq. (1)(1) $${\mathit{Surplus}}_{it}={\alpha }_0+{\alpha }_1{\mathit{Legal}\mathrm{ }\mathit{origins}}_i+{\alpha }_2{\mathit{Bank}}_{it}+{\alpha }_3{\mathit{Control}\mathrm{ }\mathit{variables}\mathrm{ }1}_{it}+{\epsilon }_{it}$$(1) ).

	Surplus
	Random-effects			GMM			Fixed-effects
English		−10.270	37.255***		−5.770	26.516***
		(−0.855)	(2.443)		(−1.529)	(7.007)
French	10.270		47.525***	5.770		32.287***
	(0.855)		(3.233)	(1.529)		(9.296)
German	−37.255***	−47.525***		−26.516***	−32.287***
	(−2.443)	(−3.233)		(−7.007)	(−9.296)
Scandinavian	−45.468*	−55.737**	−8.212	−17.542***	−23.312***	8.975***
	(−1.774)	(−2.203)	(−0.307)	(−4.792)	(−6.955)	(3.118)
Bank	−6.487***	−6.487***	−6.487***	4.426	4.426	4.426	−5.872***
	(−3.459)	(−3.459)	(−3.459)	(1.369)	(1.369)	(1.369)	(−3.075)
GDP/Capita	22.253***	22.253***	22.253***	4.722***	4.722***	4.722***	35.971***
	(5.754)	(5.754)	(5.754)	(11.657)	(11.657)	(11.657)	(7.359)
Unemployment	1.188***	1.188***	1.188***	−0.006	−0.006	−0.006	1.511***
	(5.127)	(5.127)	(5.127)	(−0.022)	(−0.022)	(−0.022)	(6.296)
Growth	1.059***	1.059***	1.059***	1.351*	1.351*	1.351*	1.061***
	(6.049)	(6.049)	(6.049)	(1.841)	(1.841)	(1.841)	(6.038)
Industry	1.821***	1.821***	1.821***	−7.545***	−7.545***	−7.545***	1.411***
	(10.221)	(10.221)	(10.221)	(−2.679)	(−2.679)	(−2.679)	(7.249)
Constant	−138.835***	−128.565***	−176.090***	42.985	48.756*	16.469	−
	(−3.605)	(−3.343)	(−4.287)	(1.501)	(1.689)	(0.555)	−
Year	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Adj. R^2	0.227	0.227	0.227	0.353	0.353	0.353	0.950
LM	454.322***	454.322***	454.322***	−	−	−	−
Breusch-Pagan	25.898***	25.898***	25.898***	−	−	−	−
Overidentifying	−	−	−	1.674	1.674	1.674	−
restrictions	−	−	−	[0.196]	[0.196]	[0.196]	−
F	−	−	−	−	−	−	165.340***
Log likelihood	−	−	−	−	−	−	−4477.570
Hausman	−	−	−	−	−	−	57.609***
Obs.	1116	1116	1116	1116	1116	1116	1116

Note: *, **, and *** indicate significance at the 10%, 5% and 1% levels, respectively. The values in parentheses are t-values. The estimation results were obtained using a random-effects model. Year represents a year dummy and is marked Yes if it is included in the model, and Obs. denotes the number of observations. GMM represents generalised method of moments. The instrumental variables include a constant term, the legal origins excluding the base category, Rule of Law, Growth, GDP/Capita, Unemployment, Bank, OECD, and Year dummy. Source: Calculated by the author.

Table 6. Estimation results (Eq. (2)(2) $${\mathit{Rule}\mathrm{ }of\mathrm{ }\mathit{Law}}_{it}={\beta }_0+{\beta }_1{\mathit{Legal}\mathrm{ }\mathit{origins}}_i+{\beta }_2{\mathit{Bank}}_{it}+{\beta }_3{\mathit{Control}\mathrm{ }\mathit{variables}\mathrm{ }2}_{it}+e_{it}$$(2) ).

	Rule of Law
	Random-effects			GMM
English		0.356***	−0.216		0.385***	−0.099***
		(3.002)	(−1.440)		(11.280)	(−2.346)
French	−0.356***		−0.572***	−0.385***		−0.484***
	(−3.002)		(−3.951)	(−11.280)		(−11.437)
German	0.216	0.572***		0.099***	0.484***
	(1.440)	(3.951)		(2.346)	(11.437)
Scandinavian	1.039***	1.395***	0.822***	0.516***	0.902***	0.418***
	(4.120)	(5.606)	(3.116)	(13.272)	(21.612)	(11.164)
Bank	0.084***	0.084***	0.084***	0.459***	0.459***	0.459***
	(5.301)	(5.301)	(5.301)	(9.939)	(9.939)	(9.939)
GDP/Capita	0.360***	0.360***	0.360***	0.513***	0.513***	0.513***
	(12.185)	(12.185)	(12.185)	(19.526)	(19.526)	(19.526)
Growth	−0.001	−0.001	−0.001	−0.023***	−0.023***	−0.023***
	(−0.813)	(−0.813)	(−0.813)	(−4.372)	(−4.372)	(−4.372)
Constant	−3.391***	−3.747***	−3.174***	−6.311***	−6.697***	−6.213***
	(−10.872)	(−12.054)	(−9.471)	(−35.570)	(−38.058)	(−33.100)
Year	Yes	Yes	Yes	Yes	Yes	Yes
Adj. R^2	0.637	0.637	0.637	0.724	0.724	0.724
LM	840.786***	840.786***	840.786***	−	−	−
Breusch-Pagan	66.480***	66.480***	66.480***	−	−	−
Overidentifying	−	−	−	278.914	278.914	278.914
restrictions	−	−	−	[0.000]	[0.000]	[0.000]
Obs.	1128	1128	1128	1128	1128	1128

Note: *, **, and *** indicate significance at the 10%, 5% and 1% levels, respectively. The values in parentheses are t-values. The estimation results were obtained using a random-effects model. Year represents a year dummy and is marked Yes if it is included in the model, and Obs. denotes the number of observations. GMM represents generalised method of moments. The instrumental variables include a constant term, the legal origins excluding the base category, Rule of Law, Growth, GDP/Capita, Unemployment, Bank, OECD, and Year dummy. Source: Calculated by the author.

Figure 3. Relationship between rule of law and rate of surplus value. Note: The rate of surplus value is the natural logarithm. The estimation uses the least squares method, and the figure uses the arithmetic mean from 2004 to 2017 for each country. The number of observations was 82. Source: Compiled by the author.

Table 7. Estimation results (Eq. (3)(3) $${\mathit{GDP}/\mathit{Capita}}_{it}={\gamma }_0+{\gamma }_1{\mathit{Surplus}}_{it}+{\gamma }_2{\mathit{Surplus}}_{it}\times {\mathit{Legal}\mathrm{ }\mathit{origins}}_i+{\gamma }_3{\mathit{Rule}\mathrm{ }of\mathrm{ }\mathit{Law}}_{it}+{{\gamma }_{4}R\mathit{ule}\mathrm{ }of\mathrm{ }\mathit{Law}}_{it}\times {\mathit{Legal}\mathrm{ }\mathit{origins}}_i+{\gamma }_5{\mathit{Legal}\mathrm{ }\mathit{origins}}_i+{\gamma }_6{\mathit{Control}\mathrm{ }\mathit{variables}\mathrm{ }3}_{it}+u_{it}$$(3) ).

	GDP/Capita
Surplus	0.003***	0.002***	−0.002***
	(9.445)	(8.227)	(−2.832)
Surplus		0.001	0.005***
× English		(1.508)	(5.639)
Surplus	−0.001		0.004***
× French	(−1.508)		(5.058)
Surplus	−0.005***	−0.004***
× German	(−5.639)	(−5.058)
Surplus	0.001	0.002	0.006***
× Scandinavian	(0.784)	(1.080)	(3.191)
Rule of law	0.162***	0.211***	0.164***
	(3.612)	(6.776)	(2.521)
Rule of law		−0.048	−0.002
× English		(−0.901)	(−0.024)
Rule of law	0.048		0.046
× French	(0.901)		(0.652)
Rule of law	0.002	−0.046
× German	(0.024)	(−0.652)
Rule of law	−0.472**	−0.521**	−0.474**
× Scandinavian	(−1.988)	(−2.200)	(−1.955)
English		−0.053	−0.449**
		(−0.399)	(−2.249)
French	0.053		−0.396**
	(0.399)		(−2.110)
German	0.449**	0.396**
	(2.249)	(2.110)
Scandinavian	1.079**	1.026*	0.630
	(1.905)	(1.827)	(1.098)
OECD	0.790***	0.790***	0.790***
	(6.326)	(6.326)	(6.326)
Unemployment	−0.014***	−0.014***	−0.014***
	(−8.897)	(−8.897)	(−8.897)
Growth	0.004***	0.004***	0.004***
	(3.664)	(3.664)	(3.664)
Constant	9.434***	9.487***	9.883***
	(91.198)	(95.132)	(53.203)
Year	Yes	Yes	Yes
Adj. R^2	0.485	0.485	0.485
LM	828.888***	828.888***	828.888***
Breusch-Pagan	132.061***	132.061***	132.061***
Obs.	1148	1148	1148

Note: *, **, and *** indicate significance at the 10%, 5% and 1% levels, respectively. The values in parentheses are t-values. The estimation results were obtained using a random-effects model. Year represents a year dummy and is marked Yes if it is included in the model, and Obs. denotes the number of observations. Source: Calculated by the author.

Table 8. Marginal effects of the interaction term on GDP/Capita (Surplus).

Interaction term with Surplus	GDP/Capita
	Marginal effect		Legal Origins
English vs. French	0.003	0.002	n.s.
English vs. German	0.003	−0.002	English
English vs. Scandinavian	0.003	0.004	n.s.
French vs. German	0.002	−0.002	French
French vs. Scandinavian	0.002	0.004	n.s.
German vs. Scandinavian	−0.002	0.004	Scandinavian

Note: The table shows the marginal effects of the interaction term between the rate of surplus value and legal origin, with the dependent variable GDP/Capita. The column ‘Legal Origins’ indicates which legal origin has a greater marginal effect. The name of the legal origin is listed if both the interaction term and the base category are significant at the 5% level. n.s. indicates not significant. Source: Calculated by the author.

Table 9. Marginal effects of the interaction term on GDP/Capita (Rule of law).

Interaction term with Rule of law	GDP/Capita
	Marginal effect		Legal Origins
English vs. French	0.162	0.211	n.s.
English vs. German	0.162	0.164	n.s.
English vs. Scandinavian	0.162	−0.310	English
French vs. German	0.211	0.164	n.s.
French vs. Scandinavian	0.211	−0.310	French
German vs. Scandinavian	0.164	−0.310	German

Note: The table shows the marginal effects of the interaction term between the rule of law and legal origin, with the dependent variable GDP/Capita. The column ‘Legal Origins’ indicates which legal origin has a greater marginal effect. The name of the legal origin is listed if both the interaction term and the base category are significant at the 5% level. n.s. indicates not significant. Source: Calculated by the author.

Table 10. GMM Model with the sample separated by legal origin.

	GDP/Capita
	English	French	German	Scandinavian
Panel: A
Surplus	0.093***	0.014***	−0.016***	0.005***
	(2.945)	(4.023)	(−15.566)	(7.657)
OECD	5.145***	1.447***	0.596***	−
	(3.725)	(8.672)	(9.187)	−
Unemployment	0.185***	0.002	−0.002	−0.045***
	(2.672)	(0.134)	(−0.301)	(−10.344)
Growth	−0.278***	−0.119***	0.002	0.006*
	(−2.364)	(−3.682)	(0.201)	(1.741)
Constant	−2.013	7.863***	11.281***	10.797***
	(−0.492)	(14.144)	(129.706)	(148.736)
Year	Yes	Yes	Yes	Yes
Adj. R^2	0.156	0.124	0.754	0.963
Overidentifying	0.122	48.841	13.8104	8.820
restrictions	[0.727]	[0.000]	[0.000]	[0.003]
Obs.	383	485	204	56
Panel: B
Rule of law	1.234***	0.586***	0.685***	3.138
	(20.885)	(8.871)	(17.199)	(0.944)
OECD	−0.704***	0.261***	−0.113**	−
	(−6.977)	(3.211)	(−2.025)	−
Unemployment	−0.026***	−0.033***	−0.001	−0.080***
	(−6.729)	(−5.791)	(−0.181)	(−9.136)
Growth	−0.047***	−0.006	−0.007	0.032
	(−3.110)	(−0.462)	(−1.027)	(1.095)
Constant	9.725***	10.028***	9.920***	5.197
	(79.373)	(87.790)	(153.427)	(0.789)
Year	Yes	Yes	Yes	Yes
Adj. R^2	0.678	0.521	0.879	0.349
Overidentifying	32.399	10.909	6.123	3.733
restrictions	[0.000]	[0.001]	[0.013]	[0.053]
Obs.	383	485	204	56

Note: *, **, and *** indicate significance at the 10%, 5% and 1% levels, respectively. The values in parentheses are t-values. The estimation results were obtained using a GMM model. Year represents a year dummy and is marked Yes if it is included in the model. Obs. denotes the number of observations. The GMM includes a constant term, Surplus, Bank, Growth, Unemployment, Bank, OECD, and Year dummy as instrumental variables. All the countries classified as having a Scandinavian legal origin are OECD countries; therefore, we removed the OECD variable from the model. Source: Calculated by the author.

La Porta, R. L., Lopez-de-Silanes, F., & Shleifer, A. (2008). The economic consequences of legal origins. Journal of Economic Literature, 46(2), 285–332. https://doi.org/10.1257/jel.46.2.285

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Data availability

This study uses publicly available data from the OECD, ILO, World Bank, and IMF.