Corporate Stability and Economic Growth
Posted: 12 Jun 2003 Last revised: 12 Feb 2014
Date Written: April 1, 2003
Greater instability in a country's list of top corporations is associated with faster economic growth. This faster growth is primarily due to faster growth in total factor productivity in industrialized countries, and faster capital accumulation in developing countries. These findings are consistent with the view that economic growth is more closely tied to the rise of new large firms than to the prosperity of established large firms. Although a stable list of leading corporations is highly correlated with government size, it is unrelated to other possible policy goals, such as (successful) income equalization and avoiding economic crises, it is related to other political factors. However, the list of top firms is more stable in countries with fewer rights for creditors in bankruptcy and with bank-based rather than stock market-based financial systems. These findings appear to oppugn arguments of the form "What's good for General Motors is good for America". We propose that political rent-seeking by large established firms underlies increased corporate stability.
Keywords: Growth, Economic System, Economics System
JEL Classification: G28, G38, O40, O57, P47
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