Academic journal article Economics, Management and Financial Markets

Globalization and Institutional Change: Are Emerging Market Economies in Europe and Asia Converging?

Academic journal article Economics, Management and Financial Markets

Globalization and Institutional Change: Are Emerging Market Economies in Europe and Asia Converging?

Article excerpt

1. Introduction

It is common parlance that we live in a smaller world today, because the ongoing process of globalization makes countries look more similar. That conviction holds as well for politico-economic orders that countries rely on. Apart from outside pressure, uncertainty about a constantly changing environment might trigger processes of mimicking (DiMaggio and Powell 1983) and the expectations are that they lead to a convergence of systems.

It is beyond dispute that tough competition on international markets forces countries to adopt their institutional settings as mechanism to survive. The question is: "Do they all adjust in a similar way?" Many scholars have taken up this intriguing question (Busch, Jörgens and Tews 2005; Campbell 2004; De Deugd and Van Roozendaal 2012; Gokhale 2010; Hennisz, Zelner and Guillén 2005). The overall conclusion seems to be that converging trails can be observed, but since global elements of organization are often combined with domestic organizational procedures or since there is a reshuffling of domestically existing structures, the paths do not necessarily intersect (Campbell 2004, 69-80).

This article aims to add to the understanding of institutional change as an adjustment mechanism in a globalizing world. In doing so, it firstly focuses on emerging market economies in Eastern Europe and Asia, since these economies are more prone to implement institutional change than full-fledged and mature market economies. Secondly, it zooms in on the financial crisis of 2008 and afterwards. That crisis clearly revealed the vulnerability of (financial) markets (Gokhale 2010; Mishkin and Eakins, 2012) and forced countries to speed up institutional reforms in the realm of the economic order. These two pointers allow to further scrutinize institutional change, especially since the performance of emerging markets in Europe and Asia have been distinct. Of course, economic performance should not be confused with economic order, since different institutional settings may yield similar results (Wagener 1992, 24), but the substantial differences in performance between European and Asian incipient markets during the financial crisis may shed new light on the dynamics of institutional change. This article addresses institutional change triggered by the external shock of the financial crisis. The pivotal question is the extent to which globalization leads to converging economic orders. Stated differently, is there still room for domestic policy maneuver that allows to "making a difference"?

After the collapse of communism in 1989, the Central and Eastern European countries took the challenge to implement a market economy embedded in a democratic order. Constituent element of the transition was a full-fledged integration into the global economy, for which accession to the European Union (EU) was understood as an important steppingstone. After a period of dramatic economic decline in the 1990s, the emerging market economies in Central and Eastern Europe experienced strong economic growth and a steady catch-up began with average welfare levels in the EU.1 Recently, however, the countries have been severely hit by the financial crisis and many have suggested that it reveals the downside of a market economy (EBRD 2010; cf. Hoen 2011). The difficulties that challenge Central and Eastern Europe deviate from what happened in emerging markets elsewhere in the world. Many countries in Asia, for example, seem to outperform their European counterparts (Das 2011).

The development of a market economy, both in Eastern Europe and in Asia, entailed encompassing institutional reform. It is widely considered a complex form of institutional change, since it affected the whole economic order and could only be successful in case other elements of the political and social system changed at the same time (Roland 2002, 29-30). Following Douglas North, this article defines institutions as formal and informal "rules of the game" (North 1990, 3). …

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