Bulgaria's institutions and
            policies : integrating into Pan-European markets
This paper analyzes the process of
            institutional transformation in Bulgaria and assesses the
            extent to which it has established institutions and policies
            fostering domestic economic activity and integration into
            global markets. After a brief review of characteristics and
            achieved progress in first-generation reforms, that is,
            removal of central control over prices, liberalization of
            foreign trade and exchange rate regimes, the paper first
            assesses in the comparative perspective the progress made in
            the quality of governance and structural reforms. It then
            takes a look at the extent to which this has impacted
            foreign direct investment inflows and was translated into
            improved business environment in its domestic and external
            dimensions. The external dimension relates to backbone
            services facilitating trade and Bulgaria's trade
            policies. As far as the latter are concerned, the discussion
            highlights tensions that emerge from duality-regional versus
            multilateral-in Bulgaria's trade policy. Despite
            significant progress in implementation of structural reforms
            and converging to the EU acquis communautaire that has led
            to a significant enhancement in the quality of governance
            and market supporting institutions, "macro"
            institutional improvements are yet to be fully transplanted
            to a micro-level, as three areas appear to remain a binding
            constraint: First and foremost is the low quality of the
            judicial system and, by the same token, weaknesses in the
            enforcement of property rights and contracts. Second,
            backbone services facilitating trade remain a barrier.
            Bulgaria ranks low relative to the levels of efficiency
            achieved on average by both EU-8 and the EU-15 countries in
            management of ports, information technology infrastructure,
            and customs. Third, there are recurrent complaints among
            businesses of government bureaucracy, poor infrastructure,
            and frequent changes in the legal framework including
            taxation. As a result, the regulatory burden remains huge.
            There are still redundant and excessive sector-specific
            regulatory regimes. Bulgaria's markets for industrial
            goods are fully contestable for pan-Europe (EU-25, European
            Free Trade Association, Romania, and Turkey), exposing local
            producers to duty-free competition from imports. With
            relatively high most favored-nation tariff rates, the level
            of reverse discrimination significantly increased over the
            past couple of years. While this has not resulted in
            perceptible trade diversion, organizational arrangements
            preventing that to happen unnecessarily increase
            administrative intervention in the economy.