Do ‘liberal market economies’ really innovate more radically than ‘coordinated market economies’?: Hall and Soskice reconsidered

Abstract

In Varieties of Capitalism; The Institutional Foundations of Comparative Advantage, Peter A. Hall and David Soskice (H&S) argue that technological specialization patterns are largely determined by the prevailing “variety of capitalism”. They hypothesize that “liberal market economies” (LMEs) specialize in radical innovation, while “coordinated market economies” (CMEs) focus more on incremental innovation. Mark Zachary Taylor [Taylor, M.Z., 2004. Empirical evidence against varieties of capitalism's theory of technological innovation. International Organization 58, 601–631.] convincingly argued that Hall and Soskice's empirical test is fundamentally flawed and proposed a more appropriate test of their conjecture. He rejected the varieties of capitalism explanation of innovation patterns. We extend and refine Taylor's analysis, using a broader set of radicality indicators and making industry-level comparisons. Our results indicate that Hall and Soskice's conjecture cannot be upheld as a general rule, but that it survives closer scrutiny for a substantial number of industries and an important dimension of radicality.