DP12615 Declining Business Dynamism

Author(s): Gert Bijnens, Jozef Konings
Publication Date: January 2018
Keyword(s): business dynamism, Entry, high-growth firms
JEL(s):
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12615

We build on Decker et al. (2016) who show that business dynamism and entrepreneurship in the U.S. have declined over recent decades and that the characteristics of this decline changed around 2000. Since 2000 the U.S. decline in dynamism has been accompanied by a decline in high-growth, young firms. Using 30 years of data from all for-profit firms incorporated in Belgium, we now offer evidence that Belgium, a far more rigid economy than the U.S., experienced a similar decline in dynamism. Furthermore, the decline set in around 2000 as well. We attribute this not only to the declining share of young firms that become high-growth firms, but more importantly also to the declining propensity for small (not necessarily young) firms to experience fast growth. We do not yet know what caused this decline. Since there are remarkable similarities between Belgium and the U.S. with respect to the secular decline in business dynamism, global trends rather than country specific changes are most likely to be at the basis of this evolution. A possible global trend causing dynamism to decline, is the ICT revolution that started the second half of the '90s. We find preliminary indications that industries with higher ICT intensity have experienced a dynamism trend change during that same period and show a steeper dynamism decline.