The great diversity of economic and institutional outcomes in the postcommunist world over the past twenty years invites explanation. In this chapter, I test the argument developed in the previous chapter using data from twenty-five postcommunist countries between 1990 and 2004, and three results emerge from the analyses. First, the effects of democracy on the pace and consistency of economic and institutional reform are conditional on the level of political polarization. While democracies exhibit faster and more consistent reform when polarization is absent, each increase in polarization reduces the positive impact of democracy. In addition, autocracies conduct slower and less consistent reforms than nonpolarized democracies.

Second, a similar dynamic is at work in transfer payments. Democracies with low polarization provide generous transfers, while democracies with high polarization and autocracies are much stingier. These results are not only consistent with the argument developed in the preceding chapter; they also shed light on the puzzling coexistence of rapid reforms and generous transfer payments in the postcommunist cases.

Third, while countries with better initial conditions experienced more rapid and consistent economic and institutional reform, there is little evidence that the impact of initial conditions exhibits increasing or decreasing returns. This suggests that a simple form of path dependence is not at work in reform outcomes in the cases at hand.