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Zombies and the Process of Creative Destruction

Sitikantha Pattanaik, Silu Muduli and Jibin Jose

EconStor Open Access Articles and Book Chapters, 2022, 53-66

Abstract: The Schumpeterian creative destruction process requires a dynamic reallocation of resources from weak and vulnerable firms to strong firms having high growth potential. Zombie firms that often survive longer than desirable taking advantage of countercyclical policy support, however, tend to thwart that process. Using firm-level data for India this article finds that monetary policy does not hinder the creative destruction process by misallocating credit flows to zombies during periods of economic slowdown, but zombies seem to have dampened the effectiveness of monetary policy at the margin as they use borrowed resources more for their survival than for undertaking new investment.

Keywords: Zombie firms in India; monetary policy; bank credit; investment (search for similar items in EconPapers)
JEL-codes: D25 E51 E52 R42 (search for similar items in EconPapers)
Date: 2022
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