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

Wim Naudé

No 12602, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: 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.

Keywords: economic complexity; entrepreneurship; start-ups; development; growth theory (search for similar items in EconPapers)
JEL-codes: E21 E25 J24 O33 O47 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2019-09
New Economics Papers: this item is included in nep-ent, nep-ino and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published - published as ' From the entrepreneurial to the ossified economy' in: Cambridge Journal of Economics, 2022, 46 (1), 105 - 131

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Working Paper: The decline in entrepreneurship in the West: Is complexity ossifying the economy? (2019)
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