Capitalist junctures : Explaining economic openness in the transition countries

Abstract

Current transition theories attribute the varying economic openness of postcommunist countries to the lack of democracy or the inhibiting veto power of vested interests. In this article, the authors offer micro-foundations for such claims and link the key changes in the foreign economic policy of these states to internal coalition building during the first stages of the political transformation.A simple game-theoretic model demonstrates that the way in which ruling elites responses to the competing demands of domestic stakeholders crucially shaped the chance of foreign economic liberalization years later.This early starter hypothesis is contrasted with contending accounts of economic opening in multivariate tests using the ELITE data set (Economic Liberalization in Transition Economies). The regression models confirm that the scope of the political transformation process has fostered foreign economic openness, while the existence of veto players helps rather than inhibits the process of foreign economic liberalization.