American Economic Journal: Macroeconomics
no. 1, January 2021
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.
Akcigit, Ufuk, and Sina T. Ates.
"Ten Facts on Declining Business Dynamism and Lessons from Endogenous Growth Theory."
American Economic Journal: Macroeconomics,
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Oligopoly and Other Imperfect Markets
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Intellectual Property and Intellectual Capital