How important are Institutions for Growth in Transition Countries?

Growth empirics with institutional measures is performed for 25 transition countries over the period 1990-95. Estimation results suggest that (particularly state) institutions are significant for growth and, especially, foreign direct investment (FDI), the latter in turn being important for the former. It is also found that the correlation between institutions and FDI is more likely to be a (direct) causation. Only inflation and war seem to have been relatively more important for growth performance in transition countries than institutions per se. This suggests that macroeconomic stabilization and peace should be the main policy priorities in transition, closely followed by institution building. <BR><BR>