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

the EU. Lastly, external shocks, such as an economic crisis may shift preferences of individuals
and politicians towards better institutional arrangements.

The remainder of the paper is organised as follows. Section 2 analyses the sources of persis-
tence of institutional arrangements. Section 3 discusses the external factors that may provide
potential mechanisms to overcome persistence in the reform process. Section 4 concludes.

2 Persistence of Institutional Arrangements

Since the breakdown of the socialistic systems in the early 1990s transition economies in Central
Asia are facing the problem of rearranging their institutional framework and finding strategies
to steer economic growth in order to cope with unemployment and welfare losses due to the
structural adjustment process.

Figure 1 compares the quality of economic institutions in Central Asian economies against
an unweighted average of the EU-15, CEEC, and MENA economies as benchmarks using the
Economic Freedom Index provided by the Heritage Foundation (2008).²

The index is a de facto measure of institutional quality and defines institutions as mechanisms
to ensure property rights and efficient public bodies in order to provide public goods in an
efficient way and reduce transaction costs. Institutional quality is measured in 10 different sub-
categories, namely business and investment regulations; trade and financial sector regulations;
monetary and fiscal institutions; property rights protection and corruption; and labour market
institutions. Each of the 10 categories is graded on a continuous scale from 0 to 100, with 100
representing a minimum of distortions and costs associated with the existing arrangements.

Figure 1 reveals that the institutional reform process in Central Asia, CEEC and the MENA
economies has been heterogeneous. Although Figure 1 suggests that institutional settings in
all countries are quite persistent, the transformation economies in CEEC and, lately, Central
Asia have been relatively successful in reforming their institutional arrangements. While Central
Asian economies have started from a low level in the early and mid-1990s they have caught up
with their neighbours in the MENA region in recent years despite poorer starting conditions.
Some Central Asian countries, namely Kazakhstan and the Kyrgyz Republic, have even come
²Throughout the paper unweighted averages are used for the CEEC, MENA, and EU-15 countries in the graphs
in order to compare policies without distorting size effects of countries.

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