ABSTRACT
Reforming the government is a crucial component of both the transition from a planned to a market economy and economic development. Creating thriving markets in these economies typically requires transforming a highly centralized and interventionist government into one that supports the market and fosters decentralized economic activities. Democracy, separation of powers, and the rule of law are among the important institutions that allow citizens to hold the government accountable for its economic actions and to secure markets from arbitrary state intrusion. By devolving power from the central to local levels, federalism is another institution that helps implement a limited yet effective government conducive to market development.
