Commitment devices, opportunity windows, and institution building in Central Asia

resource curse does not apply to Central Asian countries. Reforming the education system
might help the reform process. But educational reform efforts are subject to the same problem
as institutional reforms themselves, namely a lack of willingness to reform. Because educational
reforms will only pay off in the long-run, politicians are likely to favour reform projects that will
pay off in the short-run.

In this section, we are going to argue that economic openness and factors that are related to it
play an essential part in reforming institutions in Central Asia and are the reason for why CEEC
economies, have been even more successful in reforming their institutions than Central Asian
economies. Alesina and Fuchs-Schiindeln (2007) argue that preferences about institutions in
East and West Germany will converge over time as a result of cultural and economic exchange
within a highly integrated economy. While there certainly is an effect on preferences due to
economic exchange between Central Asian countries and the rest of the world, we focus more on
the disciplining effect external factors have on the policy agenda in small open economies and
thereby help to overcome reform-unwillingness.

A number of papers have underscored the importance of commitment devices in order to
cope with time-inconsistency and credibility problems in individual decisions and policy making
(Schelling, 1960; Barro and Gordon, 1983; Kydland and Prescott, 1997; Benjamin and Liabson,
2003). Commitment devices can work twofold: Firstly, they encourage policy makers not to
sacrifice reform efforts that would be beneficiary in the long-run for short-term policy objectives.
Secondly, they also signal that already conducted reforms will not be reversed.

In particular, countries with a higher degree of openness have a larger share of revenues per
GDP from external trade and a larger share of foreign investment in total investment. Therefore,
opportunity costs in terms of forgone business opportunities as a result of bad governance provide
an incentive to improve institutional arrangements.

Figure 4 shows the degree of trade openness measured as total imports and exports in goods
and services as a percentage of GDP in Central Asia and CEEC.

Looking at Figure 4 shows that CEEC, Kazakhstan, and the Kyrgyz Republic have opened
up over time, while trade as a share of GDP has declined in Turkmenistan, Uzbekistan, and
especially in Tajikistan. Again, focussing on changes over time rather than on absolute levels in
1995 and 2006, this reflects approximately the ranking in Figure 1.

A similar argument can be made with regard to financial openness. Lane and Milesi-Ferretti

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