Beyond Path Dependency? Constructing New Models for Institutional Change : The Case of Capital Markets in Japan

The study of national business systems is increasingly concerned with the issue of path dependency and change. This paper seeks to clarify this debate through a theoretical and empirical examination of these issues in the context of change within the Japanese financial markets. The first section considers the meaning of path dependency, institutional complementarities and positive returns. It argues that it is necessary to distinguish the societal, the firm and the individual levels of analysis in order to understand how social and economic institutions are interdependent. This reveals the possibility of disjunctures or loosening of linkages both between levels of analysis and across them. The implications of this for models of reproduction and change are considered. In the second section, empirical evidence is brought forward to show the existence of substantial change in the Japanese capital markets. In the discussion, however, the argument is made that for specific institutional reasons, these changes are insulated from a wider impact on the Japanese system. This reinforces the broader theoretical argument that institutionalist analysis needs to develop a more refined analysis of how institutions fit together and thus how path dependency actually operates