So far, economic analyses of NATO enlargement have been restricted to aspects of regional security while political analyses focused on indirect peace‐building effects on democracy in the first place. Our panel regressions for 25 post‐communist countries for the period from 1996 to 2008 reveal that direct incentives provided by NATO pre‐accession are important for broad‐based institutional development. Results are even more robust than for variables measuring EU pre‐accession or NATO membership effects. This supports the argument that NATO can act as a transformative power and should strengthen its political agenda.