Editing Path dependence (section)

=== Economic development ===
In economic development, it is said (initially by [[Paul A. David|Paul David]] in 1985)<ref>{{cite journal |first1=Martin |last1=Stack |first2=Myles |last2=Gartland |year=2003 |title=Path Creation, Path Dependency, and Alternative Theories of the Firm |journal=Journal of Economic Issues |volume=37 |issue=2 |page=487 |quote=Paul David and Brian Arthur published several papers that are now regarded as the foundation of path dependency (David 1985; Arthur 1989, 1990).|doi=10.1080/00213624.2003.11506597 |s2cid=155562359 }}</ref> that a ''standard'' that is first-to-market can become entrenched (like the [[QWERTY]] layout in typewriters still used in computer keyboards). He called this "path dependence",<ref name=":4">{{Cite journal|last=David|first=Paul A.|date=1985|title=Clio and the Economics of QWERTY|url=https://econ.ucsb.edu/~tedb/Courses/Ec100C/DavidQwerty.pdf|journal=The American Economic Review|volume=75|issue=2|pages=332–337|issn=0002-8282|jstor=1805621}}</ref> and said that inferior standards can persist simply because of the [[Legacy system|legacy]] they have built up. That [[Dvorak Simplified Keyboard#Comparison of the QWERTY and Dvorak layouts|QWERTY vs. Dvorak]] is an example of this phenomenon, has been re-asserted,<ref>{{cite journal |last=Diamond |first=Jared |author-link=Jared Diamond | date=April 1997 |title=The Curse of QWERTY |journal=[[Discover Magazine]] |url= http://discovermagazine.com/1997/apr/thecurseofqwerty1099}}</ref> questioned,<ref>{{cite journal |last1=Liebowitz |first1=S. J. |last2=Margolis |first2=S. E. |date=April 1990 |title=The Fable of the Keys |journal=Journal of Law and Economics |volume=30 |pages=1–26 |ssrn= 1069950|quote=we conclude that QWERTY is about as good a design as any alternative |doi=10.1086/467198|s2cid=14262869 }}</ref> and continues to be argued.<ref>{{cite conference |last=David |first=Paul A. |url=http://EconPapers.repec.org/RePEc:wpa:wuwpeh:0502004 |title=At Last, a Remedy for Chronic QWERTY-skepticism! |conference=European Summer School in Industrial Dynamics (ESSID) |location=l'Institute d'Etudes Scientifique de Cargèse (Corse), France |date=5–12 September 1999}}</ref> Economic debate continues on the significance of path dependence in determining how standards form.<ref>{{cite web |url= http://eh.net/encyclopedia/path-dependence/ |title=Path Dependence |last=Puffert |first=Douglas |date=2008-02-10 |access-date=20 May 2010}}</ref>

Economists from [[Alfred Marshall]] to [[Regional science#New economic geography|Paul Krugman]] have noted that similar businesses tend to congregate geographically ([[Economies of agglomeration|"agglomerate"]]); opening near similar companies [[labor mobility|attracts workers]] with skills in that business, which draws in more businesses seeking experienced employees. There may have been no reason to prefer one place to another before the industry developed, but as it concentrates geographically, participants elsewhere are at a disadvantage, and will tend to move into the hub, further [[Knowledge spillover|increasing its relative efficiency]]. This [[network effect]] follows a statistical [[power law]] in the idealized case,<ref>{{cite journal |last=D'Souza |first=Raissa M. |year=2007 |title=Emergence of Tempered Preferential Attachment from Optimization |journal=[[Proceedings of the National Academy of Sciences of the United States of America|Proc. Natl. Acad. Sci. USA]] |volume=104 |issue=15 |pages=6112–6117 |doi=10.1073/pnas.0606779104 |pmid=17395721 |display-authors=etal|pmc=1839059 |doi-access=free }}</ref> though [[negative feedback]] can occur (through rising local costs).<ref>{{cite journal |last1=Jennen |first1=M. |last2=Verwijmeren |first2=P. |year=2009 |title=Agglomeration Effects and Financial Performance |journal=Urban Studies |id=ssrn 1009226 |doi=10.1177/0042098010363495 |volume=47 |issue=12 |pages=2683–2703|s2cid=154044026 |url=https://zenodo.org/record/895942 }}</ref>
Buyers often [[cluster effect|cluster]] around sellers, and related businesses frequently form [[business cluster]]s, so a concentration of producers (initially formed by accident and agglomeration) can trigger the emergence of many dependent businesses in the same region.<ref>{{cite book |title= Global Networks and Local Linkages: The Paradox of Cluster Development in an Open Economy |author= Jen Nelles, Allison Bramwell and David Wolfe |year= 2005 |publisher= Montreal and Kingston: McGill-Queens University Press for Queen's School of Policy Studies |isbn= 978-1-55339-047-3 |page= 230 |url= http://www.druid.dk/uploads/tx_picturedb/dw2005-1650.pdf |access-date= 2010-05-20 |archive-url= https://web.archive.org/web/20160604045844/http://www.druid.dk/uploads/tx_picturedb/dw2005-1650.pdf |archive-date= 2016-06-04 |url-status= dead }}</ref>

In the 1980s, the US dollar [[exchange rate]] appreciated, lowering the world price of [[tradable goods]] below the cost of production in many (previously successful) [[United States|U.S.]] manufacturers. Some of the factories that closed as a result, could later have been operated at a (cash-flow) profit after dollar depreciation, but reopening would have been too expensive. This is an example of [[hysteresis]], [[switching barriers]], and irreversibility.

If the economy follows [[adaptive expectations]], future [[inflation]] is partly determined by past experience with inflation, since experience determines expected inflation and this is a major determinant of realized inflation.

A transitory high rate of [[unemployment]] during a [[recession]] can lead to a permanently higher unemployment rate because of the skills loss (or skill obsolescence) by the unemployed, along with a deterioration of work attitudes. In other words, cyclical unemployment may generate [[structural unemployment]]. This structural hysteresis model of the [[labour market]] differs from the prediction of a "natural" unemployment rate or [[NAIRU]], around which 'cyclical' unemployment is said to move without influencing the "natural" rate itself.