1 Introduction
Stable macroeconomic frameworks and sound economic institutions have been found an essential
factor for a country’s wealth and long-run growth. Reliable institutions are believed to reduce
uncertainty and transaction costs and thereby fostering investment and economic growth (cf.
Hall and Jones, 1999; Acemoglu et al., 2005).
This paper analyses the institutional reform process in Central Asia from 1995 to 2006.
We compare the reform processes in Central Asia with those conducted in Russia, Central
and (South) Eastern European countries (CEEC), and the Middle Eastern and North African
(MENA)economies in order to identify the determinants of institutional reforms in Central
Asia.1 Russia, CEEC and MENA economies share several similarities and important differ-
ences on the other hand in terms of history, economic structure, and culture such that the
set-up provides a natural experiment that allows us to identify those factors. All of these coun-
tries can be considered as emerging markets with a large fraction of external trade, whereas
CEEC, and Central Asian economies are former socialistic states, as opposed to the MENA
economies, which are mostly former colonies of European countries. Similarly, Central Asian
and MENA economies have a large commodity export sector as opposed to the CEEC. Also,
CEEC, MENA and Central Asian economies all have cooperation agreements with the Euro-
pean Union (EU) at varying levels of intensity ranging from an Accession Country status to a
very loose agreement about technical assistance and economic and cultural exchange such as
the Barcelona Process and Technical Assistance for the Commonwealth of Independent States
(TACIS)-programme. We add Russia to the analysis as it is the most important hegemonic
state in the region.
Several papers that have analysed the determinants of institutions. Most papers focus on
historical and exogenous factors such as abundance in natural resources or colonial and legal
origins (cf. Peters, 1996; Acemoglu et al., 2001; Beck and Laeven, 2006). This paper argues that
institutional arrangements first and foremost are subject to a political decision making process in
which politicians are responsible for setting up institutional arrangements regardless the actual
1 The terms CEEC and MENA are used very loosely in this study. We define the group of CEEC as all Central
and (South) Eastern European countries and the Baltic states that had a (potential) EU candidate status in 2006.
The group of the MENA economies is restricted to MENA countries that are part of the Barcelona Process. For
a detailed description of the country groups see Appendix.