“Zombie” firms: A major problem for growth in OECD countries

A growing number of analyses (see Appendix) shows the significant role of zombie firms in explaining the slowdown in growth in OECD countries. Zombie firms are those that are so unprofitable that they would not survive without very low interes t rates or abnormal support from banks. Their presence generates a capital allocation distortion that reduces productivity and growth (we find the estimate of a loss of growth of 0.6 percentage point per year for the OECD as a whole because of the presence of zombie firms). As the two main causes for the presence of zombie firms are low interest rates and improper support from banks, to obtain additional growth would require higher interest rates and less "lenient" banks.