The ‘Flying Geese’ Paradigm of Catch-up Growth
New Horizons in International Business series
Chapter 9: Out of an Institutional Quagmire? International Business to the Rescue
9.1. MATRICES OF INSTITUTIONS, OUTER VS. INNER When we talk about institutions and international business, it is important to keep in mind that there are two layers of institutional setting: one is an ‘outer’ (supra-national) set of global institutions and the other is an ‘inner’ (nationspecific) set of domestic institutions in each individual country. Both sets evolve as their surrounding politico-economic conditions alter over time. The outer set is currently arranged under the Pax Americana, which sends forth the forces of globalization. In this age of hegemon-led globalization, therefore, the outer set is dominant over the inner set, forcing accommodation and compliance of the latter with the norms of the former. Yet, some inner institutions retain their own logic of survival, resisting changes. Most of the time, international business activities react and adapt to – and even arbitrage between – these different institutional surroundings, but they themselves serve as agents of institutional homogenization throughout the world. As stressed by Douglass North (1990, 1999), the overall economic performance of a given economic unit is largely determined (enhanced or retarded) by its institutional regime. Such a regime can also be called ‘an institutional matrix that defines the incentive structure of society’ against the backdrop of ‘the belief system’ that connects ‘reality’ to the institutions (North, 1999: 9, emphasis added). In addition, the belief system is a product of local mores and traditions in the individual countries. North was thus talking about the role of an institutional matrix in a given individual country – that is,...
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