1887

OECD Economic Policy Papers

The OECD Economic Policy Papers series is designed to make available selected studies on structural and macro-economic policy issues of current interest. The Papers are produced in the context of the work carried out on the two regular OECD titles, OECD Economic Outlook and Going for Growth.

English

Confronting the zombies

Policies for productivity revival

Policies that spur more efficient corporate restructuring can revive productivity growth by targeting three inter-related sources of labour productivity weakness: the survival of “zombie” firms (low productivity firms that would typically exit in a competitive market), capital misallocation and stalling technological diffusion. New OECD policy indicators show that there is much scope to improve the design of insolvency regimes in order to reduce the barriers to restructuring of weak firms and the personal costs associated with entrepreneurial failure. Insolvency regime reform can not only address the aforementioned sources of productivity weakness but also enhance the productivity impacts of reducing entry barriers in product markets. As the zombie firm problem may partly stem from bank forbearance, complementary reforms to insolvency regimes are essential to ensure that a more aggressive policy to resolve non-performing loans is effective. Distortions in the banking sector highlight the importance of market-based financing instruments for productivity growth with the inherent debt bias in corporate tax systems emerging as a key barrier to technological diffusion. Finally, well-designed job search and retraining policies are effective at returning workers displaced by firm exit to work, particularly in environments where barriers to firm entry are low.

English

Keywords: Productivity, capital misallocation, banks, insolvency, zombie firms, firm exit
JEL: G21: Financial Economics / Financial Institutions and Services / Banks; Depository Institutions; Micro Finance Institutions; Mortgages; O16: Economic Development, Innovation, Technological Change, and Growth / Economic Development / Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance; K35: Law and Economics / Other Substantive Areas of Law / Personal Bankruptcy Law; J68: Labor and Demographic Economics / Mobility, Unemployment, Vacancies, and Immigrant Workers / Mobility, Unemployment, and Vacancies: Public Policy; O43: Economic Development, Innovation, Technological Change, and Growth / Economic Growth and Aggregate Productivity / Institutions and Growth; J63: Labor and Demographic Economics / Mobility, Unemployment, Vacancies, and Immigrant Workers / Labor Turnover; Vacancies; Layoffs; G32: Financial Economics / Corporate Finance and Governance / Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill; L25: Industrial Organization / Firm Objectives, Organization, and Behavior / Firm Performance: Size, Diversification, and Scope; O40: Economic Development, Innovation, Technological Change, and Growth / Economic Growth and Aggregate Productivity / Economic Growth and Aggregate Productivity: General; D24: Microeconomics / Production and Organizations / Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity; G33: Financial Economics / Corporate Finance and Governance / Bankruptcy; Liquidation; G34: Financial Economics / Corporate Finance and Governance / Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance; 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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