The European Journal of Comparative Economics Vol. 3, n. 2, pp. 197-238 ISSN 1722-4667 Available online at http://eaces.liuc.it Institutional Change and Governance Indexes in Transition Economies: the case of Poland Pasquale Tridico 1 Università di Roma 3 Abstract In the former communist countries, institutional change, i.e. transition towards market economy, is affected not only by introduction of law and formal institutions (change “by design”), but also by social norms, old values and habits (informal institutions). I present an empirical paper focusing on transition of the Polish Economy. I used a questionnaire which was administered to a sample of about 1000 Polish firms in order to verify the impact of economic institutions on the “residual productivity”. Throughout the questionnaire I built six governance indexes. Then I tested the impact of the governance indexes on the productivity of firms. I observed that the economic performance of the eastern regions of Poland, where governance indexes are worse than western, are poorer than that of the western regions of Poland. JEL Classification: D24, K42, O17, P37, Z13. Keywords: formal and informal economic institutions, trust, transition economics, governance indexes, productivity. 1. Introduction There has been burgeoning literature within economics that discusses and analyses institutions (see North 1990; Nugent and Lin 1996; Nelson and Winter 1982; Jones and Hall 1998; Olson et al. 1998; Rodrik 1999; Robinson et al. 2001; Glaeser et al. 2004; Bardhan 2005). The attention of international organisations and policy makers has focused more on the importance of institutions for economic growth. Institutional economists, economic research centres and international organisations have built indexes of governance which measure an institutional quality of developing and advanced countries. Generally, institutional indexes have common aims, namely measuring governance capacity and the quality of institutions. However, they use different methodologies and they are commissioned by different organisations such as the IMF, the World Bank, the EBRD and business clubs. Hence, these indexes are dissimilar because they depend on the commissioners’ focus of research, for example, investment risk taxonomy, corruption level, the quality of bureaucracy, political stability, etc. Some indexes, such as EBRD indexes and indexes of Kaufmann, Kray and Zoido-Lobatio 2003, are essential for a comparison of formal economic institutions among countries and measuring the impact of formal institutions. However, very little attention has been paid to informal institutions. In this paper I will propose some governance indexes which can capture the reality of transition economics in Central and Eastern European Countries (CEECs). They 1 I would like to thank Ania Gwiazda for the very useful comments. I am also very grateful to Sebastiano Fadda, Alan Mayhew, Maria Lissowska, J.J. Michałek, Claudio De Vincenti, Julia Mortera, Alessia Naccarato, Giacomo Sbrana, and all the participants of the 2004 EAEPE conference (University of Crete, 28-31 October 2004). Moreover, I greatly acknowledge comments and suggestions of the three anonymous referees. The usual disclaimer applies.E-mail: tridico@uniroma3.it