Institutional interconnections and the performance and change of economic systems

Institutions are tightly intertwined with other institutional, cultural and economic factors. The patterns of interconnections and interdependencies that such factors form resemble systems, much as different living organisms and the symbiotic relationships they engage in form ecosystems. This chapter traces analogies between symbiosis and the interdependencies that tie different social structures together. By presenting a methodological approach that builds on correlation network analysis, this chapter shows how economic systems can be better understood – by understanding their multiple institutional interconnections. The empirical results presented show the potential of the methodology in going beyond binary relations, particularly in identifying multiple, asymmetric interdependencies that are likely to capture underlying mechanics of institutional change. Through the computation of weighted directed networks, single institutional interdependencies are put ‘into broader context’, allowing the visualization of concatenated effects (or ‘paths’), as well as emergent system properties, such as centrality and clustering patterns of specific groups of institutional factors. Emergent findings computed using municipal data of different countries so far hint that informal institutions serve as ‘hosts’ for formal institutions (which depend on the former, as ‘symbionts’), as well as for proxies of trust and social capital, which tend to act as ‘middleman’ factors. The methodological approach therefore tends to suggest culture and informal institutions to be more exogenous and to be crucial in characterizing an economic system. Yet, social capital appears to behave differently, suggesting much greater volatility than, e.g. typical among cultural factors.