Digitalisation and the diffusion of information and communication technologies (ICTs) have revolutionised the way in which firms and markets operate, with important differences in business dynamism between digital-intensive and other sectors of the economy. Higher levels of business dynamism are associated with higher productivity. Analysis based on the OECD DynEmp3 database shows that digital-intensive sectors are, on average, characterised by higher business dynamism, as indicated by higher job reallocation rates and a larger share of young firms (see Calvino and Criscuolo, 2019 for further discussion).
In order to assess the role of market entry and business dynamism in top digital-intensive sectors, three key indicators have been analysed: average firm entry rates, exit rates and post-entry employment growth of entrants after five years. Digital-intensive sectors have higher entry rates than average in all countries analysed. They also have higher exit rates in most countries considered, though the magnitude of these differences is smaller than for entry rates. Cross-country differences in the sample are significant. Austria, the Netherlands and Turkey show the highest differences between the highly digital-intensive and all sectors of the economy.
Examination of the average post-entry employment growth of new firms five years after entry shows that surviving entrants in highly digital-intensive sectors grow faster, on average, than those in other sectors of the economy. Although this is true for most countries, the magnitude of the difference varies. The largest differences occur in Costa Rica, Portugal and Finland, whereas differences are smaller in Hungary, Turkey, the Netherlands and Japan.
Higher business dynamism in sectors characterised by stronger digital intensities is likely related to the diffusion of digital technologies, with the associated emergence of a wide range of new applications and business models. This is also consistent with the fact that these technologies have lower entry barriers and tend to facilitate interaction, information flows and access to markets, thus creating more opportunities for experimentation. ICTs are highly pervasive general-purpose technologies that stimulate entry and innovation not only in sectors producing them, but also in other digital-intensive sectors.
Access to finance for new and innovative firms involves both debt and equity finance. Venture capital (VC) is an important source of equity funding, especially for young technology-based firms. Available industry level data show that VC investments in 2017 were concentrated in the ICT sector in many countries, especially Lithuania, Luxembourg, Spain, the United Kingdom and the United States. The latter represents the biggest market for VC, where four in every ten dollars of VC went to the ICT sector, amounting to 0.17% of GDP.
