The article discusses the impact of national identity on democratization and market reforms in Russia and Ukraine. We develop a concept of hegemonic national identity and demonstrate its role in Russian and Ukrainian post-communist political development. The article argues that Russia's slide toward authoritarianism was to an important degree an outcome of the notions of national identity adopted by the main political players and society at large. In Ukraine, on the other hand, a hegemonic identity failed to emerge and the public discussion of issues of national identity led to the adoption of much more liberal and democratic notions of identity by a considerable part of the political elite. Adoption of this more liberal identity, in turn, was one of the main reasons for the Orange Revolution. The main theoretical implications of this argument are as follows: (a) choices of national identity profoundly affect the prospects for democracy in the newly democratizing states; (b) institutions do shape identities; (c) elites' preference for (or opposition to) liberal democracy is not simply a consequence of their understanding of their self-interest in gaining and preserving power but also is dependent to a significant extent on their choices of political identity.