Big Business Stability and Economic Growth: Is What's Good for General Motors Good for America?
Posted: 26 May 2013 Last revised: 12 Feb 2014
Date Written: July 13, 2007
What is good for a country may not be good for its big businesses, at least recently. More turnover in top businesses correlates with faster per capita gross domestic product, productivity, and capital growth; supporting Schumpeter's [1942. Capitalism, Socialism and Democracy, third ed., Harper & Bros., New York, NY] theory of “creative destruction” — innovative firms blooming as stagnant ones wither. These correlations are greater in more developed economies, supporting Aghion and Howitt's [1992. A model of growth through creative destruction. Econometrica 60, 323-351] thesis that creative destruction matters more to economies nearer the technological frontier. More big business turnover also correlates with smaller government, common law, less bank-dependence, stronger shareholder rights, and greater openness.
Keywords: Business stability, Creative destruction, Economic growth
JEL Classification: O16, F30, G38
Suggested Citation: Suggested Citation