Economic Themes (2013) 51 (1) 5, 85-106


Aleksandra Praščević

Abstract: The paper discusses the major issues of institutional and political instability impact on economic development. Among the factors that lead to differences in the achieved level of economic development between the countries, and the differences in the level of institutional development. First, the paper discusses the issues of defining institutions, differences between economic institutions, political institutions and political power. The paper discusses the possibility of integration of the endogenous growth theory with endogenous economic policy (developed in political macroeconomics) in order to consider economic policy that will have an impact on economic growth on the basis of agregating the preferences of voters in a single economic policy that is politically motivated (primarily according to opportunistic motives). In this context, it is considered that the existence of political instability that produces uncertainty regarding the viability of institutions, as well as future goals and measures of economic policy, will have the impact on the reduction of economic growth. This paper discusses an example of the major institutional change that occurred in the former socialist countries that have opted for economic transition and building a democratic society. In this regard, the paper considers the institutional factors that contributed to the success of the transition process, as well as the factors that are dictated by differences in building the institutional framework in these countries.

Keywords:  institutions; political instability; political macroeconomics; transition economies

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