Abstract

This article elaborates a new framework for understanding how variations in national institutions structure economic policy and performance. Applying the new economics of organization to the macroeconomy, it argues that the core competencies of firms depend on their capacities to coordinate with other actors in five spheres of the economy. It explores the differences between liberal market economies where such coordination is achieved mainly by market mechanisms and coordinated market economies where strategic interaction is more central to coordination. The framework generates a theory of comparative institutional advantage which suggests that national institutional frameworks need not converge in the face of pressures from globalization because firms can exploit and will often offer political support for the distinctive institutional advantages present in their political economy. These comparative advantages support different types of innovation and are often characterized by the presence of institutional complementarities across the sub-spheres of the political economy. This approach yields distinctive perspectives on economic policy, seen as a problem of decentralized cooperation, and on social policy, which is often complementary to corporate strategy and other features of the political economy.