Unbalanced Institutions in Market Transition: How Do They Matter for Firm Strategic Choices and Performance in Emerging Economies?

The legal and economic institutions in emerging economies normally undergo major changes during the transition to a market economy. The development of legal and economic institutions in such economies is discussed, and two different development paths are analyzed. One relates to economies with relatively better-developed economic institutions, and the other to those with relatively better-developed legal institutions. A series of propositions are developed to explain how different imbalances in institutional development might influence market competition, firms’ strategic choices, and firm performance. A three-stage model of economic development is proposed which attempts to account for the two different situations.