Do ‘Liberal Market Economies’ Really Innovate More Radically than ‘Coordinated Market Economies’? Hall & Soskice Reconsidered

In their influential book Varieties of Capitalism; The Institutional Foundations of Comparative Advantage, Peter A. Hall and David Soskice argue that the technological specialization patterns of developed countries are largely determined by the “varieties of capitalism” prevailing in these countries. They hypothesize that “liberal market economies” (LMEs) specialize in radical innovation, while “coordinated market economies” (CMEs) focus more on incremental innovation. We argue that Hall and Soskice’s empirical test of this hypothesis is fundamentally flawed and propose a more appropriate and rigorous test of their conjecture, based on patent citation data. The manufacturingwide industry-level results indicate that the hypothesis does not survive further scrutiny.