Institutions are the rules of conduct within a society, i.e., limitations which have been devised by humans in order to shape human interactions. Due to synergy, each positive or negative institutional change may cause significant changes within the society. Transaction costs, i.e.,the costs of all the means necessary to carry out an exchange are closely connected to the institutions. The main task of the institutions is to reduce the transaction costs with which they create a framework for strengthening productivity and competitiveness and a framework for economic growth. Institutional change is created when the participants in the exchange decide to change a previous agreement because they think it will provide them with a more favourable position. At the beginning of the transitional process, the economy and the institutions were to a great extent determined by a decade-old way of life, and each transitional country has chosen its path of development. That led to a different stage of development of the transitional countries, some of which became members of the European Union. A different level of development of the institutions is also noticeable in the transitional countries. For that reason, it seemed justified to explore the influence of the institutions on economic growth of the transitional countries, including the Republic of Croatia. In the stated research, the starting point were the different levels of institutional development of the countries during the transitional period and different levels of economic growth to ascertain whether those two categories are connected and, if so, what the implications are for Croatia. The hypothesis which has been confirmed is that institutional changes have significant and positive effect on economic growth of transitional countries (new EU members) and the Republic of Croatia from 1996 till 2012. That gives assumptions which are important for the future growth rates of Croatian economy. By implementing institutional change in Croatia, acting primarily on the institutions which have influence on the reduction of transaction costs,it is possible to have a positive influence on the economic growth of the Republic of Croatia. The goal of the dissertation is to point out the significance of the institutional change in its connection to the economic growth of the Republic of Croatia.