The Measurement and Determination of Institutional Change: Evidence from Transition Economics
It is widely appreciated that institution building is at the heart of the transition process. Without functioning institutions markets cannot work effectively and the sustainability of the economic transition process can be undermined. The crisis in Russia provided just one piece of evidence in this regard. While institutions are central to the transition process, institutional reform is not an area that is well understood by researchers and policy makers alike. In this paper we examine the determinants of institutional change using a panel dataset comprising 25 transition economics. One of the defining characteristics of our approach is that we treat institutional change as a multidimensional unobserved variable, accounting for the fact each of our indicators represents a noisy signal.
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