Path dependence and local innovation systems in city-regions
Ron Martin
Professor of Economic Geography, Department of Geography, University of Cambridge, Cambridge, United Kingdom
James Simmie
Professor of Innovation and Urban Competitiveness
Department of Planning, Oxford Brookes University, Headington Campus, Oxford, United Kingdom
PP: 183 - 196
Abstract
In this paper we argue that evolutionary economic geography and particularly the concept of path dependence provide a theoretical framework within which to understand the different historical economic trajectories followed by different cities.
Within this framework we identify four phases of path dependent development of new technologies or industrial sectors within urban economies. The particular characteristics of each of these phases depend on the nature and interactions of a city's local innovation system combined with the capacity to absorb new knowledge.
Keywords
path dependence, innovation, absorptive capacity, city regions, history
Article Text
In this brief paper, we propose an explanation for the long-run evolutionary trajectories of city-regional economies. We develop the argument that such an explanation could rest on the interrelationships between the concepts of path dependence and local innovation systems. Within this framework our basic argument is that the sectoral development of city economies evolves over long periods of time in a path dependent manner and that as a consequence condition the scope and possibilities of future development. Local innovation systems provide the key dynamic of change in these structures. Over time the interrelationships between local economic structure and innovation determine the path dependent economic trajectories of city economies relative to one another.
Evolutionary economic theory provides a rich set of possible explanations for understanding change in local economies. Within this theoretical approach three main perspectives may be identified: Generalised Darwinism which uses ideas and metaphors from evolutionary biology; the theory of complex adaptive systems; and path dependence theory. These are illustrated schematically in Figure 1.
The Generalised Darwinian (biological) evolutionary analogy adopts concepts such as variation, novelty, selection and continuity (retention) to explain the evolution of such entities as populations of firms and industries. The theory also recognises that such activity is not only purely economic but also social and deals with the co-evolution of both the economy and its institutional arrangements. Complex adaptive systems theory adapts ideas taken from complexity theory to understand the development of networked forms of economic activity, and how macro-level economic structures and organisation emerge from micro-behaviours. This approach focuses on how such systems self-organise and adapt over time, in response to both endogenously generated developments and external shocks. Path dependence theory seeks to explain the long-term historical development of distinctive patterns of technological and industrial forms, and how once established particular trajectories of technological and industrial development become self-reinforcing via various forms of autocatalytic processes, especially externalities and increasing returns effects.
Within these three theoretical approaches evolutionary economists have addressed issues where mainstream economics offers little in the way of theoretical explanation. The big themes in this work include economic growth and decline, technological change, industry life cycle studies and the importance of institutions in influencing economic change (Essletzbichler & Rigby 2006). Research in these areas includes economic growth (Nelson & Winter 1982; Nelson 1995; Verspagen 2001), technological change (Arthur 1987, 1988; David 1985; Dosi 1982; Dosi et al. 1988; Pavitt 1984), industrial evolution (Abernathy & Utterback 1978; Klepper & Graddy 1990; Klepper 2001), and the importance of institutions and regimes (Hodgson 1988; Nelson 2001; Peukert 2001). This body of work is now substantial enough for Hodgson (1993) to have provided a history of evolutionary theorising, for Witt (2003) to have pulled together a collection of classic articles in evolutionary theory, for a new evolutionary microeconomics to have emerged (Potts 2000), and for the beginnings of an evolutionary foundation of economics to be championed (Dopfer 2005).
In this theoretical analysis of the economic trajectories of city-regional economies we draw on all three perspectives but especially on path dependence theory. We also agree with those theorists cited above that innovation is the key to the introduction of new knowledge, novelty, change and renewal in long-term pathways not just in national and regional economies but also in specific cities where most economic activities are actually located. The particular characteristics of local innovation systems determine the relative abilities of different city economies to generate novelty by recombining endogenous knowledge with externally sourced new knowledge to provide a local economy with its evolutionary momentum. Some local innovation systems have proved to be much more effective at doing this than others. This is a key reason underlying the differing economic performance of urban economies and so understanding the interactions between the structural pathways followed by individual cities and their different abilities to absorb new knowledge and generate new commercial products and services is critical to understanding why some forge ahead, others may catch up and yet other cities fall behind in overall economic performance.
We develop these arguments as follows. First we briefly set out our argument on the nature of path dependent economic development in city-regional economies. This is followed by a brief discussion of how new pathways are created. Next we discuss the relationships between path dependence and local innovation systems. We then draw the different strands of our arguments together and illustrate their possible interrelationships in a concluding section.
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