Institutional change and industrial innovation in transitional economies

Abstract

This paper analyzes the forces driving the technological and institutional transformation of china's textile and apparel industries. It begins with a complete description of innovation ladders, and then provides a brief description of China's textile and apparel industry during the past decade. Examples are then used from the recent experience of China's textile and garment industries to illustrate the value of the analytical approach taken by the authors in thinking about technical progress and institutional reform in transitional economies. The authors use a model of innovation ladders to posit distinct layers of enterprises in the low-income follower nation, each with unique technical and institutional attributes, and each playing an important and distinct role in a succession of institutional and technical innovations. This model encompasses endogenous processes of institutional change and technical development. In considering its potential to deepen understanding of China's recent industrial experience, the authors focus on the potential for a virtuous circle in which a removal of institutional constraints stimulates technical change, which, via the normal process of competition, generates pressures for further increments of technical and institutional innovation.