Should Zombie Be in the Grave?: A Simulation-Based Policy Comparison between Two Types of Economies

Daiki Asanuma

No 270, TERG Discussion Papers from Graduate School of Economics and Management, Tohoku University

Abstract: The aim of this paper is to examine the argument that low productive firms should be closed to make the macroeconomic performance better. It is said that the existence of zombie firms is one of the reason for the stagnation of Japanese economy. The process of creative destruction where the new entries which have higher productivity is not in the right way because of the existence of zombie, that is, "zombie firms prevent more productive companies from gaining market share, strangling a potentially important source of productivity gains for the overall economy (Ahearne and Shinada (2005), p364)." But, if the bankruptcy of one firm affects on the other firms, this argument does not hold because there are firms which are embroiled into the bankruptcy chain. This firm's productivity is not so low that they go into bankruptcy if the whole economic performance is good. Ih this paper, the validity of zombie theory is examined by way of computer simulation with the network economy framework.

Pages: 13 pages
Date: 2011-08
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Persistent link: https://EconPapers.repec.org/RePEc:toh:tergaa:270

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