We investigate the effects of economic crises on the subsequent economic, performance, economic reform, democratization and institutional change. Our analysis is based on a sample of postcommunist countries, most of which experienced severe economic, crises during the 1990s. We find that the severity of crisis has a positive impact on the subsequent pace of economic reform, economic growth and, with a delay, on investment and institutional change. Episodes of high inflation, moreover, translate into lower subsequent inflation. Crises thus serve as catalysts of reform and institutional change and lead to better long-term economic performance.