1. ¹The World Bank, Washington, DC 20043, USA;
2. ²Edmund A Walsh School of Foreign Service, Georgetown University, Washington, DC 20057, USA. E-mail: desair@georgetown.edu;
3. ³International Monetary Fund, Washington, DC 20431, USA

¹Previous versions of this paper were delivered at the annual meeting of the American Political Science Association, Washington, DC, 2002, and at the Georgetown Political Economy seminar. We thank two anonymous reviewers for comments on earlier drafts. The findings, interpretations, and conclusions presented in this paper are the authors' own and should not be attributed to the World Bank Group, the International Monetary Fund, their Executive Board of Directors, or their member countries.

Abstract

In recent years, a 'consensus' explanation of policy reform in the transition economies has emerged, according to which, greater political partisanship and intra-government division promotes progress in reform. Using panel data from 24 post-Communist countries between 1991 and 1998, we find that increasing the number of veto players faced by the executive branch promotes financial reform. However, countries where ruling parties controlled both executive and legislative branches of governments – as long as those governments were constitutionally constrained – were more likely to dismantle preferential credit programmes and implement banking and securities' market reforms. Meanwhile, communist party strength and limited partisanship increase the likelihood that governments will remove financial restrictions but do not have clear effects on the adoption of subsequent financial-regulatory reforms. These findings suggest several modifications to the consensus explanation of economic reform in the transition.