Essays on institutions and reforms for transition (emerging) economies

Chapter 1: Could the empires that ruled Eastern Europe for centuries and the formal institutions that they implemented have left an imprint on current formal and informal institutions of modern states? This paper sheds light on the legacy of the administrative system of the Ottoman Empire in contemporary states in the region. I investigate a causal mechanism that led to divergent paths of state building and rule of law, interpreted as attitudes toward corruption. The boundary between the Ottoman Empire and the Austro-Hungarian Empire was set in the Treaty of Karlowitz in 1699, contemporaneous with a fiscal shock and a crucial change in the Ottoman fiscal system. This is identified as the historical treatment effect. First, a theoretical model is constructed, focusing on effects of tax system change, which encouraged uncontrolled predatory behavior and spread of abuse and rent extraction in the Ottoman Empire. Using Geographic Information System methods and regression discontinuity analysis with household survey data I investigate persistence of different attitudes about bribery on both sides of the former border. Findings evidence higher willingness to bribe on the Ottoman hereditary lands. These findings are robust to controls. Last, the persistent effect of weak institutions on growth is estimated using household consumption and light intensity data as proxies for development. - Chapter 2: Reforms often occur in waves, seemingly cascading from country to country. We argue that such reform waves can be driven by informational spillovers: uncertainty about the outcome of reform is reduced by learning from the experience of similar countries. We motivate this hypothesis with a simple theoretical model and then test it empirically. We find evidence of informational spillovers both with respect to both political and economic liberalization. While the previous literature has focused only on economic reform, we find that the spillovers are particularly important for political changes. - Chapter 3: A wide literature identifies trust as an important prerequisite for well-functioning markets and overall economic performance. A more recent body of research highlights history as a determinant of trust. Despite the level of attention the topic of trust has enjoyed, the literature highlights important issues with the lack of detail in existing data, collected mostly at the country level. I aim to improve on the coarse resolution offered by existing data with the help of a methodological innovation. This study analyzes the impact of history on generalized trust, using data from an international peer-to-peer hospitality exchange network, CouchSurfing.org. The geographic focus is on Romania, the territory of which was formerly divided between the Habsburg and Ottoman Empires. Previous studies reveal important differences in generalized trust between Romanias previously-Ottoman, provinces of Wallachia and Moldavia, and the formerly-Habsburg province of Transylvania, with the former two lower in generalized trust than the latter. This study uses the local density of CouchSurfing.org membership as a proxy measure for generalized trust. Findings confirm that CouchSurfing membership is higher in Transylvania than elsewhere, thus providing evidence for the validity of using CouchSurfing membership as a proxy for general ized trust. Our approach, using spatial regression, yields a basis for extrapolating measures of generalized trust to areas where little survey data exists. - Chapter 4: Some aspects of financial reform positively affect economic growth. The size of credit to the private credit also positively affects economic growth. We argue that these effects might be stronger or weaker depending on countrys historical legacies and its influence on culture and attitudes towards authority, rule of law as well as the importance of financial intermediation. Therefore we test correlation between (indexes of) historical legacies and financial reform indicators (or/and the size of financial system) for a set of transition (emerging) economies that experienced centuries of (different) imperial rule.