Rule Of Law As Growth Catalyst: Legal Foundations For Economic Prosperity – OpEd

 June 23, 2025 By Simon Hutagalung

The fundamental connection between strong legal structures and sustained economic development has become unmistakable in 2025.

Market confidence, together with institutional credibility and cross-border investment, depends on the rule of law, which has evolved beyond its status as an ideal norm into an essential foundation for economic recovery from pandemic disruptions and geopolitical tensions, and technological advancements. The growth of GDP depends on a strong rule of law system that delivers impartial judgments with predictable regulations and accessible governance and justice to all citizens to achieve meaningful foreign direct investment and stable welfare improvements.

The World Justice Project’s Rule of Law Index ranked nations for the first half of 2025, with those achieving scores above 0.82 averaging 4.0 percent GDP growth while those below 0.45 achieved only 1.7 percent¹. The significant difference demonstrates how clear property rights drive development because countries with scores above 0.80 experienced a 12 percent increase in domestic investment and an 8 percentage point growth in credit‐to‐private‐sector ratios during 2024 and early 2025. States with weak judicial independence experienced their nonperforming loans rise higher than 14 percent of their total bank assets because of contractual uncertainty³.

The International Monetary Fund studied rule of law metrics in February 2025 to show that a one-point improvement leads to a 1.2 percent increase in per-capita GDP during a five-year period⁴. The judicial appointment reforms, together with digital case management systems implemented in Indonesia and Kenya during 2023–24, led to a 15 percent and 10 percent increase in FDI inflows during 2024 compared to a 5 percent regional average⁵. The numerical data demonstrates how implementing governance standards at a global level generates tangible economic results.

The path toward achieving a consolidated rule of law in 2025 faces multiple significant challenges. Public coffers lose an estimated USD 1.3 trillion each year to corruption, according to Transparency International’s Corruption Perceptions Index for 2025, which shows that thirty percent of surveyed nations score below 40 out of 100⁶. Public graft in these environments imposes a 25 percent effective tax burden above official rates that creates unfair market competition and inefficient resource distribution⁷. Political elites who control law enforcement and judiciary budgets create risks for transactions through manipulation, which leads to higher interest rates and discourages investors from taking long-term loans.

These institutional weaknesses produce additional problems in the system. According to a World Bank mid-2025 assessment, more than 60 low and middle-income countries dedicate less than 0.05 percent of their GDP to judicial funding, although high-income states allocate 0.20 percent of their GDP for this purpose⁸. Court backlogs reach an average of three years, while judges require specialized training in commercial law and intellectual property law, and environmental law, because underfunded courts lack sufficient resources. The judicial system experiences sequential delays in decision-making, combined with inconsistent judicial decisions, which forces parties to use alternative dispute resolution methods that circumvent judicial procedures. Businesses in economies with delayed contract enforcement periods exceeding one year must pay 35 percent higher interest rates for credit compared to those operating in countries with quick enforcement times⁹.

Political instability, together with violence, makes existing institutional weaknesses even more severe. Any legal system becomes irrelevant when civil unrest or organized crime takes over regions because the basic right to personal safety disappears. The United Nations reports that conflict-affected states in March 2025 generated 5 percent of worldwide GDP while requiring 25 percent of global humanitarian aid funding¹⁰. Instability generates economic expenses that surpass humanitarian needs because it destroys investor trust and breaks supply chains while leading to the departure of essential skilled personnel who fuel innovation.

A strategic sequence of design methods, along with context-specific approaches, is needed to address these complex challenges. The establishment of transparent merit-based appointment processes, together with ring-fenced funding, represents an optimal starting point to protect the judiciary. Estonia demonstrates judicial independence reforms through 2023 to reach its current state, where courts handle digital cases amounting to 85 percent of their workload and commercial disputes are resolved within 120 days, and public support reaches 80 percent in 2025. The benchmarks established by these reforms serve as models for nations attempting to replicate this transformation.

Anti-corruption initiatives need to implement both punitive measures together with preventive approaches as part of their strategy. Through its robust legal framework featuring independent agencies and protective whistleblower laws, and transparent procurement portals, Singapore has eliminated high-level bribery, which led to a Corruption Perceptions Index score of 92 in early 2025. The OECD’s most recent peer review demonstrates how open data standards combined with civil society monitoring function as an effective measure to prevent rent seeking from spreading. Blockchain technology, together with artificial intelligence anomaly detection tools, reduces the areas of opacity that lead to corruption.

Yet technology is no panacea. Internet accessibility remains limited throughout sub-Saharan Africa since only about 40 percent of citizens have dependable online connections, thus hindering the adoption of e-governance systems¹³. Public registries alongside case filing systems experience increased cybersecurity risks when governments implement digital transformation. According to the INTERPOL survey from 2025, ransomware attacks on courts and public registries have increased by 22 percent throughout the past year¹⁴. Rule of law reform initiatives need to implement digital innovation alongside robust data protection structures and cyber forensic training programs to ensure resilience.

The majority of successful outcomes depend on international cooperation between nations. The Global Judicial Integrity Network, established by the United Nations in 2022, has provided technical assistance to more than 50 countries, which led to World Bank-funded judicial modernization projects totaling $400 million by 2025¹⁵. Trade agreements between countries now include mandatory legal reform requirements, which serve as entry conditions for Western Balkan states to join the EU in 2025 through the accession accords¹⁶. External incentives help build domestic support for reforms, which link governance improvements to economic benefits.

The empirical findings of 2025 conclusively demonstrate that an enhanced rule of law serves as the fundamental framework for achieving economic development. Jurisdictions that support independent courts alongside transparent governance systems and anti-corruption measures outperform other nations in terms of GDP growth while attracting more foreign direct investment and creating wealth in a fair manner. Low rule of law environments demonstrate unpredictable growth patterns because they remain susceptible to political interference and lack the capacity to develop strong human capital. Nations pursuing prosperity need to position legal reforms as fundamental components of their development plans because stable and predictable, and inclusive legal institutions represent the only path to sustainable economic advancement.

The opinions expressed in this article are the author’s own.

References

• O’Reilly, T. & Murphy, S. (2025). State Capacity and Growth Regimes. International Monetary Fund Working Paper WP/25/014, Washington, D.C.
• Mir, A. (2025, April 18). Deeds, Deals and Development: The Rule of Law Behind Markets. National Economic Forum.
• Transparency International. (2025, February 11). 2024 Corruption Perceptions Index. Transparency International Press Release.

Simon Hutagalung

Simon Hutagalung is a retired diplomat from the Indonesian Foreign Ministry and received his master's degree in political science and comparative politics from the City University of New York. The opinions expressed in his articles are his own.