Economic dynamism The third main factor increasing absorptive capacity is the framework in which the business operates. Greater economic dynamism, from competition to higher rates of business entry, plays an important role in incentivising firms to adopt new technology.
13 Ensuring that failed firms are able to smoothly exit the market is also key to enabling capital and labour to be allocated to where it can be more productively used. Business churn – the combined rate of business formation and closure – has been declining in Europe and the United States since just before the crisis (Chart 4).