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more narrow range of possibilities that ultimately leads to stagnation or decline when
confronted with radical technological shifts or wider market changes (Arthur, 1989;
Liebowitz and Margolis, 1995).
The rapidly growing literature within evolutionary economic geography (see Boschma
and Frenken, 2006 or Martin and Sunley, 2006 for overviews) has added to our under-
standing of regional economic development, but contributions in this emerging tradition
rarely specify the underlying micro-level processes that include individuals or i rms with
incentives, which, when acted upon, could account for the development under scrutiny
(Agassi, 1960; Coleman, 1986, 1990; Frenken and Boschma, 2007).
The objective of this chapter is to demonstrate how processes of knowledge evolution
and their institutional underpinnings make up the core of evolutionary economic geog-
raphy. More specii cally the chapter has three aims. The i rst is to show how micro-level
action provides insights needed when investigating evolutionary processes of knowledge
creation in a spatial setting. The second aim is to analyze how macro-level institutional
dynamics form development paths at the aggregate level of cities, regions or nations.
The third aim is to use such micro- and macro-level evolutionary insights to develop
an explanatory scheme by which we can review and reinterpret the coming into exist-
ence and further evolution of spatial clusters of similar and related i rms and industries
(Richardson, 1972).
The chapter is structured in i ve main sections.
Next, in section 2, we take a closer
look at the drivers, mechanisms and barriers to knowledge creation and acquisition at
the micro level. We discuss how cognitive frameworks and spatial settings give rise to
mechanisms that guide individual action in general and knowledge creation in particular
into specii c paths. In the subsequent section we engage with the emergence and possible
transformation of territorially specii c nuances of general market institutions and other
higher-order concepts of localized capabilities and their role for knowledge creation.
In section 4, we apply the approach developed in earlier sections on the specii c case
of clusters of similar and related economic activity. In the i nal section the argument is
summarized and some general conclusions are drawn.
2. Micro-level foundations for knowledge creation: routines within and among i rms
The literature on the evolution of knowledge has grown immensely in recent decades.
1
It is now well established how learning from experience, by trial and error or by rep-
etition (Arrow, 1962; Scribner, 1986), gives rise to incremental improvements that can
accumulate and gradually result in new and better ways of doing things (Boldrin and
Scheinkman, 1988; Thorndike and Rock, 1934). Over time, some novel ways are rejected
when the results are confronted with reality, while others function comparatively well
and become embedded in the specii c routines of individuals or i rms (Levitt and March,
1988). Building routines means encoding incentives and constraints of the particular
setting (Coriat and Dosi, 1998) into individuals' habituated action to a point beyond
rational decision making or deliberate choice (Cohen and Squire, 1980, Winter, 2006).
Strong and coherent routines allow actors to economize on i nding facts, processing
information and getting things done by simplifying the everyday tasks of making deci-
sions (Heiner, 1983; Penrose, 1959; Simon, 1982). Even intentional knowledge creation
by intelligent, self-interested individuals becomes path-dependent as today's routines
are related to yesterday's learning routines and knowledge (Arthur, 1994; Hayek, 1960).
