Interplay of income inequality, the surplus value ratio and market competition: The impact of the rule of law in international contexts

This study examines how the rule of law influences surplus value rates, market competition and income inequality, using cross-sectional data from 45 countries averaged from 2007 to 2023. Based on institutional economics and the Régulation theory, this study hypothesises that stronger legal institutions curb pre-market inequality and boost competition. Using ordinary least squares and generalised method of moments estimations, this study finds that a robust rule of law significantly reduces surplus value rates and boosts competition. These institutional effects lower Gini indices and increase gross domestic product per capita. Additionally, robustness checks are conducted to confirm the stability of these results. The findings suggest that legal institutions are complementary an essential for competitive markets and equitable income distribution, challenging the assumed trade-off between equality and efficiency. Thus, stronger legal institutions can support redistributive policies and provide a dual pathway to achieve equity and economic performance.