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

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  • Naudé, Wim

    (UNU-MERIT, Maastricht University, RWTH Aachen, and IZa, Bonn.)

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.

Suggested Citation

  • Naudé, Wim, 2019. "The decline in entrepreneurship in the West: Is complexity ossifying the economy?," MERIT Working Papers 2019-030, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    • Handle: RePEc:unm:unumer:2019030
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    More about this item

    Keywords

    Entrepreneurship; start-ups; development; economic complexity; growth theory;
    All these keywords.

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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