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Thursday, February 13, 2014

Is SBA-inspired "help" killing new business formation?

Kauffman Foundation Report-- Sharp Decline in Dynamism (click here for full report)

Kauffman has been pushing the Small Business Administration approach to startup, careful market research and strategic planning. Are they getting ready to admit defeat? From the conclusion of this report they just released:

In the post-2000 period, the high-tech sector is experiencing a process of economic activity consolidation, away from young firms and into more mature firms. The high-tech sector looked different than the rest of the private economy did during the 1990s, when the share of young firms was declining in the overall economy but rising in high-tech. In the early 2000s, entrepreneurial activity in the high-tech sector began declining sharply during what is well-known as the dot-com bust.

Less well known is that the share of young firms in the high-tech sector has exhibited a more pronounced secular decline in the post-2002 period than in the rest of the economy. Consistent with that pattern, we have found that the pace of business dynamism, as measured by the pace of job reallocation, has declined in the high-tech sector in the post-2002 period at a pace that exceeds that of the overall economy.

Empirical evidence suggests a link between business dynamism, innovation, and productivity growth. In this regard, the findings here point to the possibility of a slowdown in productivity and economic growth in the high-tech sector in the last decade. The slowdown we find for the high-tech sector might be an even larger source of concern than that for the overall economy, since young high-tech firms may be more important for innovation and new job creation than their non-high-tech counterparts are.

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