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argued that institutions contribute to path dependence of existing systems by reducing
uncertainty in innovation processes. The important role of formal and informal institu-
tions is rooted in their shaping of individual and collective learning processes, seen as
the foundation of the innovative outcome on the micro level. They operate as selection
mechanisms on dif erent levels by setting incentives and constraints. Doing this, institu-
tions have a substantial impact on both the support and restriction of various types of
innovation and future learning, hence contributing to specialized knowledge accumula-
tion and competence building over time (Lundvall et al., 2002). The strands of work
as aforementioned mainly highlight the selective and retentive impacts of institutional
settings in innovation processes contributing to path dependency as discussed in the
following.
Responsible for the distinct dif erences in the institutional structure at the national
level is its co-evolution process with the production structure of innovation systems.
The interdependence of economic structure and institutions as well as their mutual
reinforcement over time determine the modes and outcomes of production and learning
(Edquist, 2005; Lundvall et al., 2002; Lundvall and Maskell, 2000). The evolution of the
economic structure determines the evolution of the institutional set-up and vice versa.
As an outcome of the dynamic interplay of these two dimensions over time, the sys-
temic contexts dif er. In reverse, this also provides the explanation for country-specii c
performance and specialization.
The question of how these co-evolution processes unfold is hardly worked out in detail
and the role of institutional change has not been satisfactorily addressed. The majority
of studies analysing the relationship between innovation and institutions assume that
institutions might be slow in adapting to changes in economic structure. Because of
the complex co-evolution processes of economic structure and institutions rooted in
history, the rather implicit than explicit basic assumption is that the institutional set-up
of countries is relatively stable (Nelson, 1993; Pavitt, 1998). It is assumed that only feed-
back from radical and basic innovations has the potential to substantially change the
institutional setting of national economies (Freeman and Perez, 1988). But such radical
innovations tend to remain outside the dominant development path.
Research on sectoral systems of innovation also emanates from the relative stability
of national institutional settings that inl uence innovation processes and trajectories of
sectors by providing tangible and intangible resources. Industrial sectors tend to vary
systematically with regard to their knowledge bases, knowledge processes and associated
sector- specii c institutions. According to the sector considered, dif erent sets of actors
and institutions have an ef ect on innovation and economic performance (Malerba,
2006; Malerba and Orsenigo, 2000). In turn, that may explain why diverse institutional
settings are co-existing within a national institutional framework. On the other hand,
it has become obvious that the international performance of countries in a particular
sector is mediated by national and regional institutions and non-i rm organizations
(Montobbio, 2004). Even though the dimensions of sectoral systems are not necessarily
national, but local, national or global as well, it is assumed that national institutions and
organizations may in the long run attract those industries most compatible with them
(Malerba, 2006).
An explanation for the relative stability of institutional arrangements at the national
level compared to the change of sector specii c institutions is provided by institutional
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