Selection and Imitation in Institutional Evolution : Analysis of Institutional Change in Japan, 1960-1999

This paper presents an empirical framework to analyze institutional changes, and applies it to the evolution of several economic institutions in Japan, specifically main banking system and long- term employment. Ideas of evolutionary biology and organizational ecology are applied to the empirical analysis on institutional evolution. The basic question is how selection and imitation work in the evolution of the economic institutions. I focus on four factors of fitness, namely (i)growth rate, (ii)exit (death) rates, (iii)entry (birth) rate, and (iv)rate of the change of attribute. (i), (ii) and (iii) represent selection, while (iv) represents imitation in the process of evolution. Constructing a data set on the population of the industrial firms in Japan, I examine how the composition of the firm population has changed over time with respect to institutional attributes, specifically main bank relationship, to what extent the fitness factors (i)-(iv) have contributed to that change, and whether main bank system has co-evolved with long-term employment