Different Features of Transition Economies: Institutions Matter

Process of transition is most simply defined as a process which includes moving from centrally planned to market oriented economy. There is no uniqueness about which countries are transitional ones, as their geographical, cultural, economic and overall social context disables forming of one unique sample that would fit in every analysis. The main aspects of transition process are liberalization, macroeconomic stabilization, privatization and legal and institutional reforms. Our definition of institutions assumes Douglass North’s concept of institutions which defines institutions as the rules or regulations (humanly devised constraints) that structure political, economic and social interaction while institutional environment comprises institutions (formal and informal ones) and an enforcement mechanism. The quality of institutions in this chapter is measured by World Governance Indicators. The subject of this chapter is the analysis of quality of institutions and institutional environment in five Western Balkan countries and analysis of implications of institutional environment on overall standard of living and competitiveness of these countries. Our results indicate that Western Balkan countries lag significantly behind Central European countries in terms of institutional quality. The widening gap between the standard of living in Western Balkan countries and Central European countries in last 10 years indicates that the crucial problem in Western Balkan countries is the speed of reforms.