Institutional Foundations of Economic Growth: Evidence from the Capitalist–Communist Divergence during the Cold War Era

institutional economics; post-communist transition; path dependency; economic growth; Cold War divergence

Drawing on evidence from the capitalist-communist divergence of the Cold War era the research paper extensively examines the institutional factors that shaped long-run economic growth, income inequality, and social welfare outcomes in post-communist nations. The research investigates three interconnected propositions: whether stronger pre-transition democratic institutions predict superior long-run economic performance; whether Soviet-era institutional persistence generates an “institutional path dependency trap" diminishing convergence with Western capitalist economies and lastly, whether hybrid configurations combining market capitalism with authoritarian state control produce systematically distinct growth-inequality trade-offs. The study adopts a mixed – methods approach combining quantitative comparative analysis of nine post-communist states using Polity IV scores and World Governance Indicators with theory-driven case studies grounded in institutional path dependency and institutional economics.  The results indicate that the strength of democratic institutions at the time of transition play a crucial role in shaping long-term growth, inequality reduction, and human development outcomes. At the same time, persistent Soviet-era institutional features, including patronal networks and weak property rights, continue to limit effective market reforms. Hybrid regimes, which can achieve growth, tend to do so alongside higher levels of inequality compared to more fully liberalised systems.