Cityscape with winding road representing path dependency in regional development.

Unlocking Regional Growth: How Path Dependency Shapes Cities and Economies

Theo Raines in Business & Economy August 2025 • 4 min read.

"Discover how understanding institutional change can drive economic development in your city or region."

For years, economists and policymakers have been trying to figure out why some regions boom while others struggle. The answer often lies in a region's institutions – the formal and informal rules that shape how people interact and do business. Since the early 1990s, the role of these institutions has become a major focus in understanding urban and regional economic development. Think of it as understanding the DNA of a local economy.

The idea that urban and regional assets are critical for companies to compete globally has coincided with what some call an 'institutional turn'. This means we are paying more attention to how local rules, norms, and organizations influence everything from innovation to job creation. Concepts like Regional Innovation Systems, the Learning Region, and Local Production Systems highlight the importance of institutions in driving regional success.

But there's a catch. These institutions don't just appear out of thin air. They evolve over time, influenced by past decisions and events. This is where the concept of 'path dependency' comes in. Path dependency suggests that where a region is today is heavily influenced by the paths it has taken in the past. Understanding this can help us unlock new strategies for growth and development.

What is Path Dependency and Why Does It Matter for Regional Development?

Cityscape with winding road representing path dependency in regional development.

Path dependency, at its core, suggests that history matters. Decisions made in the past, even seemingly small ones, can have significant and lasting effects on the future. Think of it like a trail in the woods: the first few hikers might choose a path almost at random, but as more people follow that path, it becomes easier and more established, shaping where future hikers will go.

In the context of regional economies, path dependency means that a region's current economic structure, technological base, and even its culture are shaped by its history. This can create both opportunities and challenges. On one hand, a region might be 'locked-in' to a particular industry or way of doing things, making it difficult to adapt to new economic realities. On the other hand, a region's history might give it unique strengths and assets that can be leveraged for future growth.

Functional Lock-in: When strong ties between core firms and suppliers stifle investment in research and development, limiting broader market reach.
Political Lock-in: Where close relationships between industry, labor unions, and government protect outdated interests and hinder progress.
Cognitive Lock-in: When a shared, but limited, worldview prevents consideration of alternative strategies and perspectives.

However, there's been a shift in how we understand path dependency. Instead of seeing it as an inevitable march toward a fixed outcome, many now see it as an ongoing, dynamic process. Regions aren't necessarily stuck on a single path. They can adapt, innovate, and even reinvent themselves, but their past will always influence their present and future.

The Future of Regional Development: Embracing Path Plasticity

Understanding path dependency is not about being stuck in the past. It’s about recognizing how the past shapes the present and future, and then finding ways to leverage existing assets and overcome historical limitations. By understanding the dynamics of institutional change, fostering collaboration, and promoting strategic intelligence, regions can create new pathways for sustainable and inclusive growth. The key is to embrace 'path plasticity' – the ability to creatively adapt and innovate within the constraints and opportunities of a region's unique history. This nuanced approach promises a more dynamic and effective strategy for navigating the complexities of regional economic development.

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Everything You Need To Know

What is path dependency in the context of regional economic development?

Path dependency refers to the significant influence of past decisions and events on a region's current economic structure, technological base, and culture. It suggests that a region's historical trajectory shapes its present and future development, similar to how a trail in the woods becomes established over time. This means that choices made in the past, even seemingly small ones, can have lasting effects, creating both opportunities and challenges for a region's economic growth and innovation. It is a crucial concept for understanding why some regions thrive while others struggle.

How do institutions impact regional economic development?

Institutions, encompassing formal and informal rules, norms, and organizations, play a critical role in shaping how people interact and conduct business within a region. These institutions are fundamental to understanding urban and regional economic development, influencing everything from innovation and job creation to the overall competitiveness of a region. Concepts like Regional Innovation Systems, the Learning Region, and Local Production Systems highlight the importance of institutions in driving regional success by creating the framework for economic activities.

What are the different types of 'lock-in' associated with path dependency?

Path dependency can lead to different types of 'lock-in' that can hinder regional development. The text mentions three specific types: Functional Lock-in occurs when strong ties between core firms and suppliers limit investment in research and development, restricting the region's market reach. Political Lock-in arises from close relationships between industry, labor unions, and government, protecting outdated interests and impeding progress. Cognitive Lock-in happens when a shared, but limited, worldview prevents consideration of alternative strategies and perspectives, thereby stifling innovation and adaptability.

Can regions overcome path dependency and change their economic trajectory?

Yes, regions are not necessarily destined to remain on a fixed path due to path dependency. The concept of 'path plasticity' suggests that regions can adapt, innovate, and even reinvent themselves, despite the influence of their past. This involves understanding the dynamics of institutional change, fostering collaboration, and promoting strategic intelligence. By leveraging existing assets, overcoming historical limitations, and embracing new approaches, regions can create new pathways for sustainable and inclusive growth, demonstrating the ability to evolve beyond their initial path.

How can understanding path dependency help in unlocking regional growth?

Understanding path dependency is key to developing effective strategies for regional growth and development. By recognizing how the past shapes the present and future, policymakers and stakeholders can leverage existing regional assets and overcome historical limitations. This involves analyzing the region's history to identify its strengths and weaknesses, and then devising strategies to foster innovation, promote collaboration, and adapt to changing economic realities. This approach allows regions to make informed decisions that align with their unique historical context, leading to more sustainable and inclusive growth, instead of being trapped by Functional Lock-in, Political Lock-in or Cognitive Lock-in.