The Social Fabrics of Innovation in Finance: An Analysis of Knowledge Eco-Systems in Financial Centres

Friday, 3 July 2015: 4:00 PM-5:30 PM
TW1.3.01 (Tower One)
Sabine Doerry, Luxembourg Institute of Socio-Economic Research (LISER), Esch-sur-Alzette, Luxembourg; University of Oxford, Oxford, United Kingdom
International financial centres (IFC) compete fiercely with each other. Not only have these dynamics led to the IFCs’ increased specialisation, they have also caused an ever tighter functional division of labour between them. Specialisation is an outcome of strengthening place-specific financial knowledge and innovation. An IFC’s power is closely related to the strength of its professional networks and knowledge eco-systems, which are formed by market relations as well as directed flows of information and knowledge resources through a variety of personal relations, e.g. epistemic and technological communities. Knowledge eco-systems and their networked configurations are thus increasingly driven by attempts to stimulate reciprocal forms of exchange, learning and innovation rather than by direct transaction-cost considerations. In addition, specific financial networks link with other networks of different epistemic communities, e.g. information technology. Networks incorporate not only large but also highly innovative small and medium-sized firms (SME). These seem to be an important source for an IFC’s capacity for innovation.

To investigate these claims, this paper draws on primary empirical (online) survey and interview data from two financial centres specialising in the global investment fund industry, that is, Luxembourg and Singapore. Survey data reveal patterns of network interactions, i.e., professionals’ mobility patterns to combine previously disconnected ideas, expertise and tacit knowledge. They help to reconstruct patterns of connections between such individual network components, which constitute practices of mutual observation, imitation and learning in specialised financial knowledge eco-systems. Two observations are discussed in more detail: First, the role of embedded SMEs in their capacity to innovate and ‘do’ things differently by establishing new, more efficient, routines; second, the strengths of firm-state relationships, defining an area of negotiation of the regulatory frameworks that in turn shape and condition finance-related activities within a nation state’s sovereign territory. The presented empirical results, hence, provide insights into the ways and means of how existing knowledge within financial eco-systems is transformed and recombined, leading not least to capacity building of a financial centre’s resilience to external (shock) events.