This paper reviews the political economy view of economic growth in transition
from post-communism to free market economy, with a particular focus on the role of
economic policy and institutions. It tests the hypothesis whether improved institu-
tions, in terms of economic freedom, increase growth. The empirical results from the
cross-section of transition economies confirm this hypothesis. The paper concludes
that non-linearities are present in the growth model and that it makes a difference
how the economic well-being is measured.