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

65 Pages Posted: 5 Mar 2005

See all articles by Kathy Fogel

Kathy Fogel

Suffolk University - Department of Finance

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Bernard Yin Yeung

National University of Singapore - Business School

Date Written: December 29, 2004

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"

Suggested Citation

Fogel, Kathy and Morck, Randall K. and Yeung, Bernard Yin, Large Corporate Sector Stability and Economic Growth: Is What's Good for General Motors Good for America? (December 29, 2004). AFA 2005 Philadelphia Meetings; EFA 2005 Moscow Meetings Paper. Available at SSRN: https://ssrn.com/abstract=641803 or http://dx.doi.org/10.2139/ssrn.641803

Kathy Fogel (Contact Author)

Suffolk University - Department of Finance ( email )

8 Ashburton Place-Beacon Hill
Boston, MA 02108-2770
United States

Randall K. Morck

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-5683 (Phone)
780-492-3325 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governence Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Asian Bureau of Finance and Economic Research ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Bernard Yin Yeung

National University of Singapore - Business School ( email )

15 Kent Ridge Drive
BIZ 1 Level 6
Singapore, 119245
Singapore
65 6516 3075 (Phone)
65 6779 1365 (Fax)

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