Industrial Dynamics Throughout the ICT Innovation Cycle : The Rise and Decline of Business Dynamism in Portugal During 1986-2018

An increasing body of literature is analyzing the causes of the decline in business dynamism in developed economies. However, they fail to consider the changing nature of creative destruction. Except for the US, previous research is based on new-century evidence, limiting the understanding of the phenomenon. Using a novel database covering the universe of Portuguese firms in the manufacturing and service sectors from 1986 to 2018, we investigate business dynamism throughout the ICT innovation cycle. The Bai-Perron estimate indicates two structural breaks, 1993 and 2003. HP estimated trends show that, after intense creative destruction, firm dynamics have become less turbulent since 2003, with lower entry and job reallocation. Furthermore, counterfactual firm-level regressions show that an otherwise-equal post-2003 startup faced a significantly higher exit hazard than its pre-1993 counterpart. Our findings, therefore, suggest that decreased entry and increased exit risk undermine the potential of transformative entrepreneurship in the long term