CIRJE-J-118. Okazaki, Tetsuji, "Selection and Imitation in Institutional Evolution: Analysis of Institutional Change in Japan, 1960-1999", October 2004.

This paper presents an empirical framework to analyze institutional changes, and applies it to the evolution of economic institutions in Japan, specifically main bank system and long-term employment. Ideas of evolutionary biology and organizational ecology are applied to the empirical analysis of institutional evolution. The basic question is how the mechanisms of 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. Constructing a data set on the population of the industrial firms in Japan from 1960 to 1999, 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.