TY  - JOUR
AU  - Akcigit, Ufuk
AU  - Ates, Sina T
TI  - Ten Facts on Declining Business Dynamism and Lessons from Endogenous Growth Theory
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 25755
PY  - 2019
Y2  - April 2019
DO  - 10.3386/w25755
UR  - http://www.nber.org/papers/w25755
L1  - http://www.nber.org/papers/w25755.pdf
N1  - Author contact info:
Ufuk Akcigit
Department of Economics
University of Chicago
1126 East 59th Street
Saieh Hall, Office 403
Chicago, IL 60637
E-Mail: uakcigit@uchicago.edu

Sina T. Ates
Federal Reserve Board of Governors
20th & C St.
Washington, DC 20551
E-Mail: sina.t.ates@frb.gov
AB  - In this paper, we review the literature on declining business dynamism and its implications in the United States and propose a unifying theory to analyze the symptoms and the potential causes of this decline. We first highlight 10 pronounced stylized facts related to declining business dynamism documented in the literature and discuss some of the existing attempts to explain them. We then describe a theoretical framework of endogenous markups, innovation, and competition that can potentially speak to all of these facts jointly. We next explore some theoretical predictions of this framework, which are shaped by two interacting forces: a "composition effect" that determines the market concentration and an "incentive effect" that determines how firms respond to a given concentration in the economy. The results highlight that a decline in "knowledge diffusion" between frontier and laggard firms could be a significant driver of empirical trends observed in the data. This study emphasizes the potential of growth theory for the analysis of factors behind declining business dynamism and the need for further investigation in this direction.
ER  -