Institutions for Economic Development
Chapter 2: Systems of Innovation and Economic Development
2. Systems of innovation and economic development The idea that institutions, organizations, and policies are endogenous to the economic system, and thus can help explain economic development as well as economic stagnation, is not new. It appears in the new institutional economics, game theory, systems dynamics, and economic and business history, to name a few currents (Aoki, 2007; Chandler, 1962, 1977; Williamson, 1985). Evolutionary and institutional economics adopted it, from Veblen in the late nineteenth century to such theorists as March and Simon (1993), Nelson and Winter (1982), Hodgson (1993, 1999), Lazonick (1994), Nelson (2005a), and Witt (1993). Within this perspective, the systems-of-innovation approach appeared in the late 1980s and unfolded into a major current. This chapter describes three levels of systems of innovation – national, regional, and sectoral – and traces the history of government intervention in business from industrial policy to technology policy. 2.1 SYSTEMS OF INNOVATION: NATIONAL, REGIONAL, AND SECTORAL National Systems In the late 1980s, Christopher Freeman (1987, 1988), Bengt-Ake Lundvall (1988, 1992), and Richard Nelson (1988, 1993) launched the concept of national systems of innovation. They were including in it the central institutions of technology – mores, organizations, policies, and routines – in the economies of advanced industrial nations. Their definitions were not identical, and other definitions emerged later, as we see in Box 2.1. All these definitions designate institutions as endogenous elements of the system, look at institutions within nation-states, and link the system to the economic and technological performance of the private sector and the entire economy....
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