This study is an attempt to analyze the process of the state-sponsored institutional transition in the newly-merged districts of Khyber Pakhtunkhwa – from a traditional, tribal order to a rational, relatively liberal state-order. Relying on historical institutionalist framework, we address the following questions: Does institutional transplantation as a strategy to trigger an intended social change works invariably? And, how do the newly-established institutions in the tribal Pakhtun belt of Pakistan interact with the extant traditional institutions and customary practices of the local population? To answer these questions, we employ qualitative methods of data collection and analysis. Our major sources of evidence include focused group discussions, elite interviews, and personal observations. In the light of the data we collected from the field, we conclude: 1) that the newly instituted (relatively liberal) order – or at least some elements therein – is in conflict with an “ideal Pakhtun” tribal character of the newly-merged districts; and, 2) that majority of the indigenous population are disillusioned with the newly-instituted state-order: they question both the will and capacity of the state to actuate socioeconomic and political transformation of the tribal Pakhtun belt of Pakistan. In the light of our research findings, we propose that, besides forcefully asserting its sovereign rights to govern the newly-merged districts, the state needs to introduce several policy reforms in order to encourage democratic accountability, formalization and digitization of market, and strong civil society and professional organizations. We emphasize that these (and similar) policy measures will prove instrumental in (re)building (and maintaining) trust between the state and society; in transforming the structures of incentives in favor of the newly-instituted state-order; and, in inspiring the indigenous society and market get integrated with the rest of the country and beyond.