Inter-temporal co-evolution of divergent economic activities and spatial economic resilience embedded in informal institutions

Abstract

The emergence of divergent economic activities in the context of developing economies characterised by institutional voids and market failure is a result of changes in the institutional environment and institutional arrangements. This study provides an inter-temporal framework for understanding the emergence of economic activities, institutional change, path dependence, and spatial economic resilience mediated by continuous and reciprocal interactions between economic and institutional agents (formal and informal) at the micro-level. Co-evolutionary studies of divergent economic activities in the Indian city of Delhi have revealed that radical changes in the institutional environment that did not enable retention of the existing ‘lock-in’ and informal institutional arrangements such as social ties and networks led to institutional drift and path exhaustion for the industrial sector. Meanwhile, in the service sector, the response of economic entrepreneurs to changes in the institutional environment has led to technological lock-in and the emergence of supporting informal institutional arrangements. Formal institutional arrangements have undergone institutional layering that has led to economic path creation for the service sector.