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Productivity, Zombie Firms and Exit Barriers in Portugal

Author

Listed:
  • Christian Osterhold
  • Ana Fontoura Gouveia

Abstract

Productivity growth is slowing in OECD countries, coupled with increased misallocation of resources. A recent strand of literature focuses on the role of non-viable firms “zombie firms” to explain these developments. Using a rich firm-level dataset for Portugal, we explore the role played by zombies in firm dynamics and the misallocation of labour and capital. We confirm the results on the high presence of zombie firms, which are significantly less productive than their healthy counterparts and drag down aggregate productivity. Higher zombie presence is associated with lower growth of viable firms, stifling intra-sectoral capital reallocation. Portugal has shown one of the largest reductions in barriers to exit and restructuring of all OECD countries and is therefore particularly suited for an assessment of the extensive margin effects of these policy changes. We show that a reduction in exit and restructuring barriers promotes a more effective exit channel and fosters the restructuring of the most productive zombies. The results highlight the role of public policy in addressing zombies’ prevalence, fostering a more efficient resource allocation, and promoting productivity growth.

Suggested Citation

  • Christian Osterhold & Ana Fontoura Gouveia, 2020. "Productivity, Zombie Firms and Exit Barriers in Portugal," International Productivity Monitor, Centre for the Study of Living Standards, vol. 38, pages 29-49, Spring.
  • Handle: RePEc:sls:ipmsls:v:38:y:2020:2
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    File URL: http://www.csls.ca/ipm/38/Osterhold_Gouveia.pdf
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    Citations

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    Cited by:

    1. Diane Coyle & John McHale & Ioannis Bournakis & Jen-Chung Mei, 2023. "Recent Trends in Firm-Level Total Factor Productivity in the United Kingdom: New Measures, New Puzzles," Working Papers 036, The Productivity Institute.
    2. Ren, Meixu & Zhao, Jinxuan & Zhao, Jingmei, 2023. "The crowding-out effect of zombie companies on fixed asset investment: Evidence from China," Research in International Business and Finance, Elsevier, vol. 65(C).
    3. Lara Wemans & Manuel Coutinho Pereira, 2022. "Characteristics of parties and duration of insolvency cases in Portugal," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    4. Shen, Yu & Ren, Meixu & Zhao, Jingmei, 2023. "Bank competition and zombie company: Empirical evidence from China," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 297-318.

    More about this item

    Keywords

    Portugal; Zombie Firms; productivity; firm exit;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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