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Institutions, Restructuring and Macroeconomic Performance

In: Advances in Macroeconomic Theory

Author

Listed:
  • Ricardo Caballero

    (Massachusetts Institute of Technology and National Bureau of Economic Research)

  • Mohamad Hammour

    (Paris, France, and Centre for Economic Policy Research)

Abstract

The core mechanism that drives economic growth in modern market economies is the massive ongoing restructuring and factor reallocation by which new technologies replace the old. This process of Schumpeterian ‘creative destruction’ permeates major aspects of macroeconomic performance — not only long-run growth, but also economic fluctuations and the functioning of factor markets. At the microeconomic level, restructuring demands innumerable decisions to create or destroy production units. The efficiency of those decisions hinges on the existence of sound institutions that provide a proper transactional framework. Failure along this dimension can have dire macroeconomic consequences. By limiting the economy’s ability to tap new technological opportunities and adapt to a changing environment, institutional failure can result in dysfunctional factor markets, economic stagnation, and exposure to deep crises.

Suggested Citation

  • Ricardo Caballero & Mohamad Hammour, 2001. "Institutions, Restructuring and Macroeconomic Performance," International Economic Association Series, in: Jacques Drèze (ed.), Advances in Macroeconomic Theory, chapter 9, pages 171-193, Palgrave Macmillan.
  • Handle: RePEc:pal:intecp:978-0-333-99275-3_9
    DOI: 10.1057/9780333992753_9
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Labour Market; NBER Working Paper; Creative Destruction; Supply Elasticity; Restructuring Process;
    All these keywords.

    JEL classification:

    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)

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