How important are Institutions for Growth in Transition Countries?

Growth empirics with institutional measures is performed for 25 transition countries overthe period 1990-95. Estimation results suggest that (particularly state) institutions aresignificant for growth and, especially, foreign direct investment (FDI), the latter in turnbeing important for the former. It is also found that the correlation between institutionsand FDI is more likely to be a (direct) causation. Only inflation and war seem to have beenrelatively more important for growth performance in transition countries than institutionsper se. This suggests that macroeconomic stabilization and peace should be the main policypriorities in transition, closely followed by institution building.