Business dynamism has experienced a significant decline during the last decades in the United States. This paper offers a new explanation based on the assumption of provider-driven complementarity, which makes seemingly independent products become complements when provided by a single firm. I develop a quality ladder growth model where provider-driven complementarity is crucial in determining firms' incentives to challenge incumbents in their established markets. I show that a decline in the average size of innovations induces a growth slowdown. Moreover, I find that the entry rate declines, and both concentration of sales and Research and Development expenditure increase even as the growth rate of the economy declines. This is in contrast to a standard quality ladder model without provider-driven complementarities which implies the reverse. The asymmetry generated by provider-driven complementarity between entrants and incumbents in their incentives to conduct R&D is key for generating the decline in business dynamism.
Inside the decline of the labor share: Bringing the tales together
I document vast industry-level heterogeneity in the decline of the labor share of the U.S. during the last two decades. This decline is contemporaneous to a strong process of structural change between manufacturing and services industries. I analyze both phenomena through the lens of a multi-sector model in which the main mechanisms that have been proposed to explain the decline in the labor share -- biased technical change and increasing market power -- also affect the process of structural change between sectors. I show that structural change is relevant for the overall labor share as it affects the weight of each industry's labor share. I use the model to infer the rate of technical change and market power -- in the form of exogenous markups -- that match the U.S. data. I find that the increase in markups accounts for two-thirds of the decline in the labor share, while the remaining third is a consequence of capital-biased technical change, the fundamental driver of the process of structural change.