This monograph focuses on the institutional environment and examines the role of institutional environment in economic development. It offers an innovative methodology for a quantitative evaluation of the institutional environment, covering economic, political and value institutions, whereas the evaluation of the institutional potential shows how the state uses its opportunities to influence the institutional environment. By using the proposed methodology, the monograph offers a detailed assessment of the institutional environment and its improvement potential in the Baltic and Central European countries and gives recommendations for the improvement of institutional environment in these countries.