What Happened to U.S. Business Dynamism?

65 Pages Posted: 16 Apr 2019

See all articles by Ufuk Akcigit

Ufuk Akcigit

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); Center for Economic and Policy Research (CEPR)

Sina Ates

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: April 2019

Abstract

In the past several decades, the U.S. economy has witnessed a number of striking trends that indicate a rising market concentration and a slowdown in business dynamism. In this paper, we make an attempt to understand potential common forces behind these empirical regularities through the lens of a micro-founded general equilibrium model of endogenous firm dynamics. Importantly, the theoretical model captures the strategic behavior between competing firms, its effect on their innovation decisions, and the resulting "best versus the rest'' dynamics. We focus on multiple potential mechanisms that can potentially drive the observed changes and use the calibrated model to assess the relative importance of these channels with particular attention to the implied transitional dynamics. Our results highlight the dominant role of a decline in the intensity of knowledge diffusion from the frontier firms to the laggard ones in explaining the observed shifts. We conclude by presenting new evidence that corroborates a declining knowledge diffusion in the economy. We document a higher concentration of patenting in the hands of firms with the largest stock and a changing nature of patents, especially in the post-2000 period, which suggests a heavy use of intellectual property protection by market leaders to limit the diffusion of knowledge. These findings present a potential avenue for future research on the drivers of declining knowledge diffusion.

Keywords: business dynamism, Competition, knowledge diffusion, Market concentration

JEL Classification: E22, E25, L12, O31, O33

Suggested Citation

Akcigit, Ufuk and Ates, Sina, What Happened to U.S. Business Dynamism? (April 2019). CEPR Discussion Paper No. DP13669. Available at SSRN: https://ssrn.com/abstract=3372868

Ufuk Akcigit (Contact Author)

University of Chicago - Department of Economics ( email )

1126 E. 59th St
Chicago, IL 60637
United States

HOME PAGE: http://www.ufukakcigit.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Center for Economic and Policy Research (CEPR) ( email )

London
United Kingdom

Sina Ates

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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