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The decline in entrepreneurship in the West: Is complexity ossifying the economy?

Wim Naudé

No 30, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

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: slow population growth, market concentration, zombie-firm congestion, slower diffusion of knowledge, and burdensome business regulations. While having merit, these explanations are largely supply-side oriented and moreover fail to explain why the decline in entrepreneurship is associated 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: Entrepreneurship; start-ups; development; economic complexity; growth theory (search for similar items in EconPapers)
JEL-codes: O47 O33 J24 E21 E25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ent, nep-hme, nep-ino, nep-lma and nep-mac
Date: 2019-09-11
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Persistent link: https://EconPapers.repec.org/RePEc:unm:unumer:2019030

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