Can innovation be induced by state involvement in the market? Evidence within an expanded framework of Hall & Soskice (2001)

Hall and Soskice's (2001) Varieties of Capitalism provides a background for explaining institutional benefits for specific types of innovation. Extensive research has been conducted to verify their claims, but controversy remains because the criteria of radical innovation are ambiguous. In this study, the numerous indicators for radical innovation presented in previous research are comprehensively verified. In addition, the expanded framework, including the concept of state capitalism, is used to reflect real-world economic circumstances in which state involvement in the market drives economic growth and innovation. By expressing the components that serve as the basis for clusters of market economy types as continuous variables, we identified which factors affect innovation and to what extent they do so. The results of a patent analysis support Hall and Soskice's (2001) claims, while those based on a trade analysis show conflicting results. A trade-off exists between state involvement in the market and innovation.

Automated summary

Hall and Soskice's (2001) Varieties of Capitalism provides a background for explaining institutional benefits for specific types of innovation. Extensive research has been conducted to verify their claims, but controversy remains because the criteria of radical innovation are ambiguous. In this study, the numerous indicators for radical innovation presented in previous research are comprehensively verified. In addition, the expanded framework, including the concept of state capitalism, is used to reflect real-world economic circumstances in which state involvement in the market drives economic growth and innovation. By expressing the components that serve as the basis for clusters of market economy types as continuous variables, we identified which factors affect innovation and to what extent they do so.