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Big business stability and economic growth: Is what's good for General Motors good for America?

  • Fogel, Kathy
  • Morck, Randall
  • Yeung, Bernard

What is good for a country may not be good for its big businesses, at least recently. More turnover in top businesses correlates with faster per capita gross domestic product, productivity, and capital growth; supporting Schumpeter's [1942. Capitalism, Socialism and Democracy, third ed., Harper & Bros., New York, NY] theory of "creative destruction"--innovative firms blooming as stagnant ones wither. These correlations are greater in more developed economies, supporting Aghion and Howitt's [1992. A model of growth through creative destruction. Econometrica 60, 323-351] thesis that creative destruction matters more to economies nearer the technological frontier. More big business turnover also correlates with smaller government, common law, less bank-dependence, stronger shareholder rights, and greater openness.

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Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 89 (2008)
Issue (Month): 1 (July)
Pages: 83-108

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Handle: RePEc:eee:jfinec:v:89:y:2008:i:1:p:83-108
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