Drawing on the recent literature on economic institutions and the origins of economic
development, we offer a political economy explanation of why institution building has varied so
much across transition economies. We identify dependence on natural resources and the
historical experience of these countries during socialism as major determinants of institution
building during transition. Using natural resource reliance and the years under socialism to
extract the exogenous component of institution building, we also show the importance of
institutions in explaining the variation in economic development and growth across transition
economies during the first decade of transition.