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Customer Acquisition, Business Dynamism, and Aggregate Growth

Year: 2026

Type: article

Abstract: Business dynamism—the process of firm entry, growth and exit—lies at the heart of modern endogenous growth models. While productivity differences have traditionally been seen as the main driving forces of business dynamism, a growing body of evidence suggests that customer acquisition is at least as important. In light of this evidence, we propose a novel endogenous growth model in which innovating firms must first acquire customers to sell their products. Estimating our model with aggregate and firm-level data, we find that expansions of firms’ customer bases (market sizes) boost their incentives to innovate and shift resources towards high-growth businesses (“gazelles”). Combined, these effects explain over 40% of aggregate growth and substantially change predictions about the efficacy of growth policies. Finally, we document support for key model predictions using firm-level micro-data.

Source: The Review of Economic Studies

DOI: 10.1093/restud/rdag060

Authors: Marek Ignaszak, Petr Sedláček

Institutions: European Commission, Joint Research Centre, Joint Research Centre, Joint Research Centre, UNSW Sydney

Language: English

Topic: Economic Growth and Productivity

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $6,530