Coordinated Market Economy

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MPIfG Discussion Paper 04/5

Varieties of Capitalism and Institutional Complementarities in the Macroeconomy An Empirical Analysis Peter A. Hall and Daniel W. Gingerich

Peter A. Hall is Krupp Foundation Professor of European Studies and the Director of the Minda de Gunzburg Center for European Studies at Harvard University. Daniel W. Gingerich is a Graduate Associate of the Weatherhead Center for International Affairs and a Ph. D. candidate in the Department of Government at Harvard University. Peter A. Hall phall@fas.harvard.edu Daniel W. Gingerich gingeric@fas.harvard.edu

Peter A. Hall and Daniel W. Gingerich Varieties of Capitalism and Institutional Complementarities in the Macroeconomy: An Empirical Analysis

MPIfG Discussion Paper 04 / 5 Max-Planck-Institut für Gesellschaftsforschung Köln Max Planck Institute for the Study of Societies Cologne September 2004

© 2004 by the author(s) MPIfG Discussion Paper | ISSN 0944-2073

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Abstract

Using aggregate analysis, this paper examines the core contentions of the “varieties of capitalism” perspective on comparative capitalism. We construct a coordination index to assess whether the institutional features of liberal and coordinated market economies conform to the predictions of the theory. We test the contention that institutional complementarities occur across sub-spheres of the macroeconomy by examining the correspondence of institutions across sub-spheres and estimating the impact of complementarities in labor relations and corporate governance on rates of growth. To assess the stability of the institutional features central to the theory, we assess the dynamics of institutional change in recent years. The evidence suggests that there are powerful interaction effects among institutions across sub-spheres of the political economy that must be considered if the economic impact of institutional change in any one sphere is to be accurately assessed.

Zusammenfassung

Mit Hilfe von Aggregatdaten analysiert dieses Papier Kernaussagen des „Varieties-ofCapitalism“-Ansatzes. Um beurteilen zu können, ob die Aussagen der Theorie mit den institutionellen Begebenheiten liberaler und koordinierter Ökonomien übereinstimmen, konstruieren wir einen ländervergleichenden Index der ökonomischen Koordination. Wir überprüfen die These von der institutionellen Komplementarität zwischen den verschiedenen Sphären politischer Ökonomien, indem wir das Zusammenwirken von Institutionen analysieren und den Einfluss komplementärer Institutionen der Arbeitsbeziehungen und der Unternehmenskontrolle auf die Höhe von Wachstumsraten untersuchen. Wir diskutieren darüber hinaus, wie stabil die institutionellen Begebenheiten in den vergangenen Jahren waren. Im Ergebnis zeigen sich starke Interaktionseffekte zwischen den Sphären politischer Ökonomien, die berücksichtigt werden müssen, um die wirtschaftlichen Wirkungen institutionellen Wandels in einzelnen Sphären zu verstehen.

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MPIfG Discussion Paper 04 / 5

Contents

1 2 3 4 5 6 7

The varieties of capitalism approach Establishing coordination as a crucial dimension Locating political economies relative to one another Congruence across spheres of the political economy The effect of institutional complementarities on economic growth Political and economic adjustment paths Conclusion

7 10 13 17 22 30 37 39

References...
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