The transition impact concept was developed to clarify what the European Bank for Reconstruction and Development aimed to achieve through its investments and to guide the selection and design of projects. In the early 1990s, traditional cost–benefit analysis was used to assess project proposals, but this approach measured potential economic value rather than whether a project contributed to the transition toward an open market economy. It was also a static method, ill-suited to the dynamic nature of economic transition, which prompted the need for a new framework.
Under the leadership of Nick Stern, the Bank introduced a simpler and more adaptable approach. This framework defined the essential components of a market and examined how individual projects could strengthen those components and through which mechanisms. The result was a qualitative checklist supported by a narrative that allowed project teams to articulate how their investments would drive dynamic change. Although reliant on judgement rather than purely quantitative data, this approach proved robust and created a meaningful accountability structure aligned with the Bank’s mandate.
As transition economies evolved, the framework provided clear guidance on whether markets were being built, but it offered limited insight into how well those markets functioned. Questions increasingly arose around competition, innovation, inclusion, environmental impact, and fairness, highlighting that the goal was not only to create markets but to ensure they operated effectively and sustainably.
In response, a major review of the transition impact concept in 2016 shifted the focus from the existence of markets to their quality. This revision identified six defining characteristics of well-functioning markets: competitiveness, inclusiveness, good governance, environmental sustainability, resilience, and integration. By emphasizing outcomes rather than processes alone, the revised framework aligned the EBRD more closely with the broader development objectives of multilateral development banks.
This evolution also clarified the Bank’s role in new regions, such as the southern and eastern Mediterranean, where economic development challenges extended beyond basic market formation. Nearly a decade later, the relevance of these six qualities continues to be debated amid political resistance to environmental, social, and governance principles. At the same time, there is growing recognition that future frameworks may need to place greater emphasis on technology and innovation, adapt the balance among existing qualities, and reflect the priorities of client countries as they lead their own development paths.
