The impact of macroeconomic and governance factors on GDP growth in European countries: a comprehensive panel data study

Purpose This study evaluates the impact of macroeconomic and governance factors on GDP growth in the 27 European Union (EU) Member States from 2000 to 2022. It examines key variables such as household disposable income, inflation, political stability, rule of law, regulatory quality, trade openness, unemployment, and government effectiveness to understand the drivers of economic growth. Design/methodology/approach The analysis employs panel data econometric techniques using both the Ordinary Least Squares (OLS) model and the Random Effects (RE) model. The Hausman test confirms the preference for the RE model. Diagnostic tests, including heteroscedasticity and Dumitrescu-Hurlin causality tests, validate the robustness of the results. Findings Governance quality—measured by rule of law, political stability, and government effectiveness—significantly promotes GDP growth, while corruption negatively impacts economic performance. Trade openness also shows a positive association with growth, while inflation and unemployment have mixed effects depending on the model used. Causality analysis reveals that governance improvements lead to higher GDP growth, rather than the reverse, emphasizing the importance of institutional quality. Originality/value The study offers new insights by integrating governance and macroeconomic perspectives, highlighting the role of institutional quality and economic integration in fostering sustainable growth within the EU. These findings are valuable for policymakers aiming to strengthen governance and promote economic stability.