Abstract
This essay attempts to explain the process of the institutional transition of Taiwan, applying the limited and open access orders framework proposed by D.C. North, J. J Wallis and B. R. Weingast. The article analyses economic and political reforms in order to extract the factors positively affecting the process of economic development in Taiwan. The findings indicate that the key factor was the security threat of Communist China. However, other conditions were also important. It should be noted that Chiang Kai-shek’s government could learn from its past mistakes, and it was an outsider regime. Moreover, the USA aid helped to consolidate the dominant coalition. Finally, ethnic tensions between the newcomers from the Mainland and the Taiwanese resulted in the separation of the political sphere from the economic sphere, which was conducive to economic development.
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