Zombies and the Process of Creative Destruction

RBI Bulletin, 76(2), 53-66, 2022

17 Pages Posted: 6 Apr 2022

See all articles by Sitikantha Pattanaik

Sitikantha Pattanaik

Government of India - Reserve Bank of India

Silu Muduli

Government of India - Reserve Bank of India

Jibin Jose

Reserve Bank of India

Date Written: February 16, 2022

Abstract

The Schumpeterian creative destruction process requires a dynamic reallocation of resources from weak and vulnerable firms to strong firms having high growth potential. Zombie firms that often survive longer than desirable taking advantage of countercyclical policy support, however, tend to thwart that process. Using firm-level data for India this article finds that monetary policy does not hinder the creative destruction process by misallocating credit flows to zombies during periods of economic slowdown, but zombies seem to have dampened the effectiveness of monetary policy at the margin as they use borrowed resources more for their survival than for undertaking new investment.

Keywords: Zombie firms, monetary policy, bank credit, investment

JEL Classification: E51, E52, D25, R42

Suggested Citation

Pattanaik, Sitikantha and Muduli, Silu and Jose, Jibin, Zombies and the Process of Creative Destruction (February 16, 2022). RBI Bulletin, 76(2), 53-66, 2022, Available at SSRN: https://ssrn.com/abstract=4036485

Sitikantha Pattanaik

Government of India - Reserve Bank of India ( email )

Bakery Junction Service Road
Vazhuthacaud
Thiruvananthapuram, Kerala 695033
India

Silu Muduli (Contact Author)

Government of India - Reserve Bank of India ( email )

Bakery Junction Service Road
Vazhuthacaud
Thiruvananthapuram, Kerala 695033
India

HOME PAGE: http://https://sites.google.com/view/silumuduli/

Jibin Jose

Reserve Bank of India ( email )

Shahid Bhagat Singh Road
Mumbai
Mumbai, Maharashtra 400051
India

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