Institutional persistence or reform: self-enforcing modernization and stagnation in transition countries

We present an empirical model that explicitly accounts for gradual, dy- namic transition processes in post-communist countries. Simulation results based on this model re ect the diverging transition paths of these countries, which include quick democratic consolidation, political stagnation and rever- sals and the collapse of the transition mechanism. Which path a country takes depends on the constellations in the political and economic arena at the out- set of the transition process. Successful endogenous simultaneous transition requires that a considerable degree of political competition exists. Citizens then push for economic reforms when confronted with an economic downturn. Due to the complementarity of economic and political reforms, economic liber- alization encourages further political reforms, while delays in economic liber- alization can halt democratic consolidation. Political stagnation and reversals thus occur when economic reforms lags behind political reforms because the lack of economic competition impedes democratization. The reform process collapses in countries with little political competition.