Varieties of Capitalism and Institutional Comparative Advantage : A Test and Reinterpretation

How do national-level institutions relate to national comparative advantages? We seek to shed light on this question by exploring two different sets of hypotheses based on the Varieties of Capitalism and other branches of comparative capitalisms literature. Applying fuzzy-set qualitative comparative analysis (fsQCA) to data from 14 industries in 22 countries across 9 years, we find that comparative advantages in industries with radical innovation emerge in specific configurations mixing coordinated and liberal institutional features. Institutional comparative advantage in industries with radical innovation may thus be based on the “beneficial constraints” (Streeck, 1997) of opposing institutional logics rather than on the self-reinforcing institutional coherence envisioned in much of the Varieties of Capitalism literature. By contrast, we find that coordinated market economies may have comparative advantages in industries with incremental innovation, as envisioned in the Varieties of Capitalism literature. Our paper contributes to our understanding of the “so what?” related to capitalist diversity and its implications for location decisions of multinational enterprises. We further present a coordination index going beyond Hall and Gingerich (2009) with annual values for 22 OECD countries from 1995 through 2003