Path Dependency Theory
Path dependence is a theory that seeks to explain why certain developments, technologies, or decisions are made, and how particular outcomes may be determined. Path dependence is a concept that originated in the field of economics but has since been applied to other fields such as political science and public policy. In economics, path dependence considers how past decisions dictate current and future situations, thereby creating a situation of entrenchment, where change is costly and difficult.
Much of the research on path dependence focuses on the effect of historical events and developments on current dynamics. For instance, one may consider why a certain industry has become entrenched in a particular region, or why certain economic policies have been adopted in relation to the ones that were in place prior to their adoption. Path dependence allows researchers to develop a theory of why certain outcomes have transpired and what might occur in the future as well.
The concept of path dependence has its roots in the field of evolutionary economics. Evolutionary economics is associated with the idea of “asset specificity,” which examines how an economy or industry develops a particular set of assets or capabilities through the accumulation of path dependent factors such as capital investments, skills, and technologies. In other words, the term path dependence implies that future development and divergence from previous decisions become limited by what has been invested in the past.
Path dependence theory is used to explain how historical developments can lead to the entrenchment of particular outcomes that may not accurately reflect the potential outcomes of current decisions. As an example, one might consider the effects of the North American Free Trade Agreement (NAFTA) on the US auto industry. NAFTA has been controversial in its effects on the US auto industry, as it created incentives for automobile manufacturers to locate their production facilities in Mexico rather than the US. The “path dependent” decisions of past auto manufacturers resulted in the entrenchment of the current auto production industry in Mexico rather than the US, which has resulted in job losses in the US auto industry and the export of capital to Mexico.
Path dependence is an important concept in modern economics and is often used to explain the development of certain industries, regions, and countries. Path dependent decisions have often been used to explain the decision-making process and the evolution of certain economic structures, such as why certain countries have become globally competitive and how capital investments can shape future development. Path dependence also has implications for policy makers, as understanding path dependent decision making can provide some insight into how current decisions can affect future outcomes. As such, path dependence is an important concept for understanding economic and political dynamics and how they interact.
