4. The Institutional Foundations of Transition and Emerging Economies

Broadly speaking, the term transition economy (TE) describes an economy that is evolving from a centrally planned system to a market-based system (Samoilenko and Osei-Bryson 2008; Hoskisson et al. 2000; Makhija 2003; Svejnar 2002). These economies are different from controlled and developed economies due to the extent of reforms and to the fact that their end points are rather uncertain. With the reforms in question, prices and trade are widely liberalized, guaranteed employment comes to an end, traditional markets are lost, and massive privatizations occur (Makhija 2003; Svejnar 2002). This scenario leaves businesses in a condition of uncertainty, as they struggle to survive (Peng 2003; Peng and Heath 1996). At times, uncertainty was also enhanced by reforms that favored specific industries and companies rather than others (Farashahi and Hafsi 2009; Newman 2000). Differences in reforms at a national level and processes of change generated institutional contexts that had different degrees of market orientation.