The Decline in Entrepreneurship in the West: Is Complexity Ossifying the Economy?

Arbeitspapier

Entrepreneurship in most advanced economies is in decline. This comes as a surprise: many scholars have expected an upsurge in entrepreneurship. What are the reasons for the decline? In this paper I first document the extent of the decline in terms of entrepreneurial entry rates; the share of young and small firms; and in terms of labor market mobility and in innovativeness. I then critically discuss the explanations that have been offered in the literature, which variously ascribes the decline to either the slowing of population growth, and/or growing market concentration, zombie-firm congestion, slower diffusion of knowledge, and burdensome business regulations. While having merit, these explanations tend to take a supply-side view and moreover fail to explain why the decline in entrepreneurship is largely confined to economies with high levels of economic complexity. I argue that we need to consider the potential of negative scale effects and evolutionary pressures from rising complexity, as well as long-run changes in aggregate demand and energy costs. Whether the decline in entrepreneurship and the ossification of the economy is undesirable, is a point for debate, calling for more research and more attention to entrepreneurship in growth theories.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 12602

Classification and Topics

• Classification: Wirtschaft ; Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence ; Technological Change: Choices and Consequences; Diffusion Processes ; Human Capital; Skills; Occupational Choice; Labor Productivity ; Macroeconomics: Consumption; Saving; Wealth ; Aggregate Factor Income Distribution
• Subject: development ; start-ups ; entrepreneurship ; economic complexity ; growth theory

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Naudé, Wim
• Event: Veröffentlichung
• (who): Institute of Labor Economics (IZA)
• (where): Bonn
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/207427
• Last update: 10.03.2025, 11:41 AM CET