‘Zombie’ firms: coming or going?

The ‘productivity puzzle’ is partly due to the fact that GDP does not count a part of production (intangible assets) that is growing faster than the rest. Academics think that another contributor is the fact that there are an increasing number of low-productivity firms. Is this a good thing or a bad thing? The word ‘zombie’ implies the latter; such companies would deserve a stake through the heart and the term is very popular among insolvency practitioners. But low productivity would be common at both ends of the industry life cycle, for embryonic as well as aging business (see When Businessmen Fear Growth which you can download from this site). What we need is longitudinal studies of where the increase in ‘zombies’ come from and what happens to them. How much of the increase is due to more start-ups which go on to become stars, and how much is due to ex-parrots being slower to fall off their perches? ┬áThis will tell us whether our financial intermediation is getting better or worse at facilitating new enterprises and destroying duds. Some new data from ONS may answer this, providing better control than the shaky GDP calculation. There are some older studies, but it’s not clear how relevant they are to the modern mature economy, see:
http://haskelecon.blogspot.co.uk/2013/01/zombie-firms-and-low-uk-productivty.html

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