The inverted U-shaped relationship between judicial development and economic growth: evidence from China

Judicial development (JD) is a crucial factor influencing regional economic growth. This study delves into the non-linear relationship between JD and regional economic performance. Focusing on China, we propose an inverted U-shaped hypothesis based on a path analysis of influencing mechanisms. This hypothesis is empirically tested using non-linear regression and threshold regression models. The findings reveal that: (1) In both the baseline regression and the System Generalized Method of Moments (SYS-GMM) model, the linear term of judicial development level (JDL) is significantly positive, while the quadratic term is significantly negative, indicating an inverted U-shaped impact of JD on China’s economic growth. (2) The threshold regression model confirms this hypothesis, as the threshold variable passes the single-threshold test, and the coefficients shift from positive to negative. (3) Employment, gross capital formation, and the marketization index positively contribute to China’s economic growth, while the full-time equivalent of R&D personnel shows no significant effect. (4) Heterogeneity analysis reveals that the inverted U-shaped structure is most pronounced in the eastern region, suggesting that its JD has entered a phase of institutional marginal inhibition. The central region also exhibits a non-linear pattern, though its boundary remains ambiguous. In contrast, the western region is still in a phase where JD continues to release institutional dividends that drive growth.