Institutions in transition : reliability of rules and economic performance in former Socialist countries

Building reliable institutions that support a market system is widely believed to be critical to a successful economic transition. The authors present indicators on the predictability of the institutional framework across twenty transition economies -including indicators of the predictability of rules, political stability, the security of property rights, the reliability of the judiciary, and the lack of corruption. They then investigate whether those indicators can explain differences in economic performance. The results suggest that the predictability of the framework may indeed explain a large part of differences in foreign direct investment and in economic growth among transition economies. Political stability and secure property rights are particularly important to entrepreneurial confidence in the economy.