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Institutional change as growth promotor in transition countries : searching for theoretical framework

Despite relatively modest contribution of the "New economy" (NE) to economic growth and development on macroeconomic level of the transition countries stressed by many recent research projects, NE should be taken as a great potential factor in accelerating the long-term economic growth of these countries. Moreover, the proponents of "tehnological change impact" strongly advocate that NE presents a great opportunity to transition countries for catching-up with developed countries. The convergence hypothesis states that transition countries will grow faster due to lower opportunity and sunk costs of switching to new tehnologies. The ability of transition countries to respond to the challenge of the current tehnological change is determined, by large extent, by the capacity of existing (inherited) institutions and willing to take institutional change needed to adopt to the new circumstances. Thus, the crucial point in this process is institutional set-up which should support adoption of new tehnologies, application of knowledge, suport innovations, organizational advances and profitable use of modern information tehnologies. Appropriate institutional set-up must exist before these countries could benefit of the NE. Institutions lead tehnological change in short period. In this sense "developmental and tehnological trap" can be understand in terms of "institutional trap" - insufficiently developed institutions leads to poverty in the era of globalisation. As Hoff and Stiglitz (2001, p.389) pointed out, development is not anymore primarily the process of capital accumulation, but rather process of organizational change. The capital accumulation is not the necessary nor enough prerequisite for a high growth rates. It is a opinio communis that the second transition stage means transforming transition economies into fully flaged market economies and institutionally built capitalism- a second stage is primarily on institution building. The fact is that capitalist economies differ in how they regulate both markets and political competition. Does globalisation and EU accession may favor some aspects of cultural and institutional diversity in transition countries? On contrary, if institutions metter for economic preferences, then why don't countries simply import the best ones from abroad (blueprint)? Is it possible to achive real convergence and catching up through the theoretical underpinnings and policy measures advised by international financial organizations and by adopting EU institutions? The main task of this paper is to explain two models of institutional change and import of institutions based on competing modern economic approaches- evolutionary old institutionaly economics and new institutional economics. We strongly advocate that different theoretical frameworks crucially change our expetations about the possible success of import and developing institutions in transition countries, as well as institutional impact on NE and related costs. Also, we distinguish micro and macro institutional change and its effects on economic growth in transition countries. It seems that small-scale NE microeconomic improvements do not contribute significantly to economic growth in transition countries. For the economic growth more important seems to be improvements in macroeconomic institutional building, complementaries among insitutions and external economies. The methodological value of both approaches should be seen more in explaining some misunderstandings we are faced, than using these models for economic policy. The working paper is divide into several parts. First part deals with the role of NE and institutions in transition economies. After defining basic terms in details, some trends about NE and institutional reforms in transition countries are described. In the second part different models of institutional change and import of institutions are given. The failures and improvements of both approaches are stressed. In the last two parts of the work, based on findings from institutional economics, we challenge overtuned role of NE in short term growth process in transition countries. Also, we sttrongly challenge the convergence hypotesis in short run and advocate evolutionary approach taking into consideration inhereted institutional basis of this countries. It means that understanding historical evolution and the current context and conditions shaping institutions is crucially in eypaing the differences in economic development, perfomances as well as to design of economic and political reforms. Indeed, economics should recome back to culture and history.

Institutionalism; formal institutions; informal institutions; new economy

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