The path dependence of knowledge and innovation 1

Path dependence characterizes dynamic processes that are non-ergodic but not deterministic (past-dependent) because actions at each point in time can affect their rate and direction. The generation of technological knowledge and both the rate and the direction of technological change are path dependent because of the pervasive effects of localized learning and the limited exhaustibility of knowledge. At each point in time, the interaction between individual ingenuity and the size and composition of the stock of knowledge available in the system shapes the recombinant and recursive generation of new knowledge, and affects the chances that firms can rely on a creative response to cope with the out-of-equilibrium conditions of factor and product markets. The systemic character of path dependence relies upon interactions between macro- and micro-elements of the process of creative response, which ultimately reaffirms the Schumpeterian legacy in path dependence.