Taxonomies and typologies: Starting to reframe economic systems

We propose that it is an important ongoing research agenda to devise a new classification of economic systems based on empirical observation rather than abstract reasoning, and then subject this to the test of empirical validity by exploring whether this taxonomy explains observed behaviour. However, we do not ourselves yet attempt a new classification of economic systems; rather, we draw on the Varieties of Institutional Systems configuration (Fainshmidt, Judge, Aguilera and Smith, 2018) as the basis for our empirical work. We ask whether, holding country-specific institutional factors, sector-specific technological characteristics and ownership-specific firm-level attributes constant, enterprise performance is contingent on the configuration. We test this idea on the World Bank Enterprise Survey of 30,000 firms in more than 57 countries between 2006 and 2016, using a production function methodology. Our proposition that taxonomic systems matter is supported by the evidence. We find that in these understudied economies, systems based on both free market logic and state capitalism achieve equivalent firm-level performance, while systems allowing rent-seeking and cronyism are less efficient. Thus, this new approach allows for system equivalence (equifinality) as well as system superiority.