This report explores business growth and contraction in Europe and the US.

Key findings:

• Europe has a lower share of high-growth firms than the US. It has a much larger share of firms that neither expand nor contract in a three-year period.
• The US has both faster-growing and faster-shrinking firms.
• The faster successful companies grow, the faster unsuccessful companies in the same industry shrink.
• The lower dynamism of European businesses suggests less experimentation and a slower reallocation of resources from less to more productive businesses, both important drivers of productivity growth.
• Policies targeted solely at high-growth firms are not sufficient to address Europe’s lack of dynamism. They need to be combined with structural reforms that remove not just barriers to entry, but also barriers to growth and contraction.

As European economies recover from the recession, they face significant challenges. Not least of them is the perennial productivity problem: European businesses are not as productive as those in the United States, and this gap has been widening since the mid-1990s.

This divergence deserves more analysis. In this unique project, 11 countries in Europe, North America and New Zealand worked together to produce a new database that measures how quickly businesses grow or shrink in each country, allowing a much better statistical overview of business dynamism to be developed.

Author:
Albert Bravo Biosca