Institution Building and Growth in Transition Economies

54 Pages Posted: 20 Jul 2005

See all articles by Thorsten Beck

Thorsten Beck

City University London - Sir John Cass Business School; Tilburg University - European Banking Center, CentER

Luc Laeven

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

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Date Written: July 2005

Abstract

Drawing on the recent literature on economic institutions and the origins of economic development, the authors offer a political economy explanation of why institution building has varied so much across transition economies. They identify dependence on natural resources and the historical experience of these countries during socialism as major determinants of institution building during transition by influencing the political structure and process during the initial years. Their empirical analysis shows that countries that are more reliant on natural resources and spent a longer time under socialist governments are more likely to see former communists remain in power and to start the transition process with less open political systems, with negative repercussions for the development of market-compatible institutions. Using natural resource reliance and the years under socialism to extract the exogenous component of institution building, the authors also show the importance of institutions in explaining the variation in economic development and growth across transition economies during the first decade of transition.

Keywords: Transition economies, Institutions, economic development

JEL Classification: O10, P20

Suggested Citation

Beck, Thorsten and Laeven, Luc A., Institution Building and Growth in Transition Economies (July 2005). Available at SSRN: https://ssrn.com/abstract=757865

Thorsten Beck (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Tilburg University - European Banking Center, CentER ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Luc A. Laeven

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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