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Evolution and Economic Complexity

Edited by J. Stanley Metcalfe and John Foster

Dedicated to the goal of furthering evolutionary economic analysis, this book provides a coherent scientific approach to deal with the real world of continual change in the economic system. Expansive in its scope, this book ranges from abstract discussions of ontology, analysis and theory to more practical discussions on how we can operationalize notions such as ‘capabilities’ from what we understand as ‘knowledge’. Simulation techniques and empirical case studies are also used.
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Chapter 4: Dynamic Capabilities, Tacit Knowledge and Absorption

Peter Hall


Peter Hall1 INTRODUCTION The primitive assumptions that distinguish firms in an evolutionary model of competition are that: 1. 2. 3. 4. they are inherently different from one another; differences among them persist through time; they adapt to a changing competitive environment; and they influence the competitive environment by their own innovations. Assumption 1 is the basis for the heterogeneity essential for selection processes to have a variety of ‘experiments’ to work on. Assumption 2 implies some inheritance or inertia characteristic that allows the differences to persist for long enough for selection processes to operate. Assumptions 3 and 4 reflect the operation of firm-level behaviours designed to promote survival and growth in an environment of continual change engendered by: ● ● ● changes in scientific and technological knowledge; changes in consumers’ tastes, preferences and levels of awareness and understanding; and other firms’ decisions, whether elsewhere in the supply chain or in direct competition. The core behavioural assumption is that firms act to survive and, with varying degrees of commitment, to do well (that is, to earn above-average returns).2 Firms are more or less successful, depending on what they know and what they do with what they know, period by period and over time, in the changing environment they confront. The common feature of all evolutionary accounts of the firm that draws these assumptions together and provides the key concept for tests of evolutionary theory at the firm level is dynamic capabilities:3 ‘the capacity to sense opportunities...

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