Barriers to Creative Destruction: Large Firms and Nonproductive Strategies
Working Paper 2021-23
Abstract: This working paper reviews recent empirical evidence on large firms and nonproductive strategies that hinder creative destruction and reallocation. The focus is on three types of nonproductive strategies: political connections, nonproductive patenting, and anticompetitive acquisitions. Across different contexts using granular micro data sets, we overwhelmingly see that as firms gain market share, they increasingly rely on nonproductive strategies but reduce their productive, innovation-based strategies. I also discuss theoretical channels, aggregate implications, and potentials for some policies.
JEL classification: O3, O4
Key words: creative destruction, innovation, growth, patents, political connections, firm dynamics
This working paper is based on the presentation at the festschrift symposium "Economics of Creative Destruction" in honor of Philippe Aghion and Peter Howitt. The author thanks the symposium participants for their comments. The views expressed here are those of the author and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the author's responsibility.
Please address questions regarding content to Salomé Baslandze, Federal Reserve Bank of Atlanta, 1000 Peachtree St. NE, Atlanta, GA 30309.
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