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Quantifying creative destruction: Entrepreneurship and productivity in New Zealand

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  • John McMillan

Abstract

This paper (a) provides a framework for quantifying any economy's flexibility, and (b) reviews the evidence on New Zealand firms' birth, growth and death. The data indicate that, by and large, the labour market and the financial market are doing their job. Creative destruction “revolutionizes the economic structure from within,” Joseph Schumpeter famously said, “incessantly destroying the old one, incessantly creating a new one” (Schumpeter, 1975, p. 83). Innovation in business - bringing new goods, new markets, new methods of production, new ways of organizing firms - is the “fundamental impulse that sets and keeps the capitalist engine in motion.” Does the economy have enough flexibility? Are there barriers in the way of entrepreneurship? This paper develops a framework for quantifying creative destruction. Applying the framework to New Zealand, I conclude that the sluggish productivity growth of the past fifteen years cannot be blamed on economic rigidities. The data depict an economy with ample creative destruction. Ascribing New Zealand's slow growth to a business-unfriendly culture is a misdiagnosis.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/00779950409544401
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal New Zealand Economic Papers.

Volume (Year): 38 (2004)
Issue (Month): 2 ()
Pages: 153-173

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Handle: RePEc:taf:nzecpp:v:38:y:2004:i:2:p:153-173

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Cited by:
  1. David C. Maré, 2005. "Indirect Effects of Active Labour Market Policies," Working Papers 05_01, Motu Economic and Public Policy Research.
  2. David C. Maré & Michelle Poland, 2005. "Defining Geographic Communities," Working Papers 05_09, Motu Economic and Public Policy Research.
  3. Arthur Grimes, 2005. "Regional and Industry Cycles in Australasia: Implications for a Common Currency," Macroeconomics 0509020, EconWPA.
  4. Arthur Grimes, 2005. "Intra & Inter-Regional Industry Shocks: A New Metric with an Application to Australasian Currency Union," Macroeconomics 0509019, EconWPA.
  5. Procter, Roger, 2008. "Inside the Black box: Policies for Economic Growth," Occasional Papers 08/8, Ministry of Economic Development, New Zealand.

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