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Turbulent growth: Business dynamism and aggregate productivity

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  • Massari, Filippo

Abstract

Turbulence refers to the endogenous reallocation of resources (such as jobs) across firms due to entry, exit, and churning (movements within the firm-size distribution). The paper develops a model of turbulent endogenous growth in which firms invest in in-house innovation to cut costs and gain market share. As firms grow, the marginal return to market share declines due to downward-sloping demand, weakening the incentive to innovate. This mechanism, combined with idiosyncratic shocks, generates endogenous churning while preserving a stationary firm-size distribution. The results are robust to introducing entry and exit, which amplify churning and affect growth through selection. In a counterfactual exercise, I model the observed decline in high-growth startups as a thinning of the right tail of the R&D productivity distribution. While eliminating skewness can generate large reductions in aggregate outcomes, matching its decline explains only 15% of the post-2000 slowdown, suggesting a limited aggregate role for fast-growing startups.

Suggested Citation

  • Massari, Filippo, 2026. "Turbulent growth: Business dynamism and aggregate productivity," European Economic Review, Elsevier, vol. 186(C).
    • Handle: RePEc:eee:eecrev:v:186:y:2026:i:c:s0014292126000759
    DOI: 10.1016/j.euroecorev.2026.105331
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