Thursday, March 20, 2008

Branch Plant Economy not such a Bad thing?

Throughout the 80s and 90s there was a fear that Canada was turning into a branch plant economy to the US. The fear was Canadian companies were selling out to foreign competitors gutting the Canadian industrial base and less control/research and development happening in Canada. According to a recent study, those fears may have been unjustified. H/T: Paul Kedrosky

Big business turnover correlates with rising income, productivity, and (in high income countries) faster capital accumulation; consistent with Schumpeter's (1912) creative destruction and recent formalizations like Aghion and Howitt (1992). Turnover appears to "cause" growth; and disappearing behemoths, more than rising stars, drive our results.
Maybe politicians should be less concerned that companies are too big to fail but rather that because they are big, they should be allowed like any other company to fail.

No comments: