The article examines the significance of institutional quality for economic performance during transition. In any economy the most important institutions are the legal system and its quality, the state, the structure of the financial system and the system of international relations. The process of economic transition was mainly a process of massive institutional changes which were spurred by economic causes and also themselves had significant economic consequences. The article examines the institutional changes in transition economies and shows that institutions matter. To prove this, a simple descriptive method was used, followed by econometric testing: a panel data analysis and an extreme bounds analysis to check the robustness of the results.