Working Paper #2019-030
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 e ects 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
- JEL codes
-
- O47
- O33
- J24
- E21
- E25
Cite this as
APA 7th ed.Naudé, W. (2019). The decline in entrepreneurship in the West: Is complexity ossifying the economy? (UNU-MERIT Working Paper No. 2019-030). UNU-MERIT. https://unu-merit.nl/publications/working-papers/abstract/?id=8317