Large Corporate Sector Stability and Economic Growth: Is What's Good for General Motors Good for America?

Abstract

What is good for a country's leading corporations is generally not good for the country's overall economy. Turnover in the list of a country's top ten corporations between 1975 and 1996 is associated with faster overall economic growth, faster productivity growth, and (in high income countries) faster capital accumulation. This is critically due to old leading firms declining or disappearing, as well as to new firms arising, and this turnover appears to 'cause' economic growth. We interpret this as consistent with Schumpeter's (1912) theory of creative destruction, in which growth entails creative new firms destroying old stagnant ones. Our findings are much stronger in high than low income countries, suggesting that creative destruction plays a greater role in the growth of more developed economies. Creative destruction appears to be more intense where government is smaller, Common Law holds sway, banking systems are smaller, shareholder rights are better protected, and the economy is more open. Only the last is more important in low than high income countries.

Note: Previously titled "Corporate Stability and Economic Growth"