Modeling the co-evolution of national industries and institutions

Abstract

Important contributions within the realms of industrial dynamics and evolutionary economic theory have shown the need to explore the sources of industrial leadership in high-tech industries. Several of these studies suggest that the co-evolution between national industries and certain supporting institutions could play a fundamental role as a source of competitive advantage, although an analysis of these processes still poses significant formal and theoretical challenges. In this article, we draw on previous contributions to formal evolutionary theorizing in order to build up a co-evolution model suitable for the dynamic analysis of industrial leadership. This model involves national firms competing on a worldwide level in a science-based industry, and co-evolving with their respective national university systems. Certain national firms may influence university funding by institutional shaping, while national university systems crucially affect the competitive advantage of said firms in the global market. The model highlights important mechanisms through which institutional, technological, and market interrelated factors determine the dynamics of industrial leadership and, eventually, the emergence of industrial leadership shifts. Some of the implications regarding policy and future research on economic development follow.