Entrepreneurial industry structures and financial institutions as agents for path dependence in Southwest Norway: the role of the macroeconomic environment

Guided by an evolutionary perspective, we study how macroeconomic shifts as an exogenous factor contribute to the endogenous roles of financial institutions and the entrepreneurial industry structure as indicators for path extension or diversification in Southwest Norway. Path extension implies that new firm formation reproduces itself with limited variation. Path diversification implies a departure from existing paths, in that entrepreneurial activities expand into unrelated or related industries. Between 1992 and 1998, we observe a departure from path extension and an increase in entrepreneurial path diversification into unrelated industries, but this trend declines in the following years. The increase and decline are stronger for Southwest Norway than for the rest of the country. Throughout the whole period of observation (1992–2011), we observe a steady decline in path diversification into related industries. Thus, Southwest Norway, and the country as a whole, experiences an extension of an industry structure that increasingly reproduces itself, which implies stronger path dependence and decreasing diversification of related and unrelated entrepreneurial activity. Financial institutions mostly reinforce path extension, even in periods when abundant capital is available, but to some degree, they also induce related path diversification.