The decline in entrepreneurship in the West: Is complexity ossifying the economy?
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 eects 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.
JEL classification: O47, O33, J24, E21, E25
Keywords: Entrepreneurship, start-ups, development, economic complexity, growth theory