Institutions and Economic Performance: An Overview of Empirical Research with the Main Focus on Transition Economies

The New Institutional Economics integrates the theory of institutions into mainstream economics. Institutions are formally and informally the "rules of the game" in society. As such, institutions structure economic activity and influence its outcomes at both micro and macro levels. This paper reviews the empirical literature, focussing on its relevance to transitional economies. We conclude that institutions matter profoundly for economic growth and development. However, although empirical research has increased understanding of the role of institutions in the economy, many questions remain open, especially for transition economies. Knowledge gaps that invite further investigation include: transmission channels between institutions and national output; the issue of mutual endogeneity between institutions and economic growth; the structure and size of the institutional framework and its influence on economic performance; and the links between success in integration with the EU of transition economies, financial support from the EU and the quality of institutions.