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By Timothy Frye

Does democracy advertise the construction of industry economies and strong nation associations? Do state-building and market-building pass hand in hand? Or do they paintings at cross-purposes? This publication examines the connection among state-building and market-building in 25 post-communist nations from 1990 to 2004. according to cross-national statistical analyses, surveys of industrial managers, and case stories from Russia, Bulgaria, Poland, and Uzbekistan, Timothy Frye demonstrates that democracy is linked to extra financial reform, improved country associations, and better social transfers whilst political polarization is low. yet he additionally unearths that raises in political polarization hose down the optimistic impression of democracy via making coverage much less predictable. He lines the roots of political polarization to excessive degrees of source of revenue inequality and the institutional legacy of communist rule. by way of picking whilst and the way democracy fosters markets and states, this paintings contributes to long-standing debates in comparative politics, public coverage, and post-communist stories.

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If the producer expects the government to renege on its policy after it invests, it will be reluctant to create the new firm in the first place because the producer is better off not investing than losing its investment. The problem of credible commitment is not confined to tariff policy but is present in all policies that introduce immediate costs and only the promise of future gains for citizens and politicians, including privatization, price liberalization, and institutional reform. Because governments are sovereign, they can change policy at any time.

Later in the chapter I consider the effects of holding elections before the delivery of the transfer. Kapstein and Milanovic (2000: 4) suggest the plausibility of this distribution of preferences. They note that “pensioners represent 20–25 percent of the population in transition economies; employees in the budget sphere represent another 10 percent. ” One could easily add that incumbents and their producers share revenues obtained above the level needed to satisfy the dependent sector. 28 Building States and Markets After Communism their core constituencies.

In addition, it offers a means to assess whether initial conditions shape policy outcomes over time in other countries and on other issues. Causal Depth and Causal Mechanisms Disentangling the impact of initial conditions on economic and institutional reforms has heightened interest in the role of causal depth and causal mechanisms in the postcommunist transformation and in theories of comparative politics more generally. On one hand, recent studies caution against attributing causation to temporally close factors that may be the result of deeper historical factors and suggest the value of exploring the origins of independent variables of interest to guard against simple forms of endogeneity (Kitschelt 2003; Darden and Grzymala-Busse 2007; Pop-Eleches 2007).

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