How Destructive is Innovation? / Daniel Garcia-Macia, Chang-Tai Hsieh, Peter J. Klenow.

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Garcia-Macia, Daniel

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TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w22953.Publication details: Cambridge, Mass. National Bureau of Economic Research 2016.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: Entrants and incumbents can create new products and displace the products of competitors. Incumbents can also improve their existing products. How much of aggregate productivity growth occurs through each of these channels? Using data from the U.S. Longitudinal Business Database on all nonfarm private businesses from 1983 to 2013, we arrive at three main conclusions: First, most growth appears to come from incumbents. We infer this from the modest employment share of entering firms (defined as those less than 5 years old). Second, most growth seems to occur through improvements of existing varieties rather than creation of brand new varieties. Third, own-product improvements by incumbents appear to be more important than creative destruction. We infer this because the distribution of job creation and destruction has thinner tails than implied by a model with a dominant role for creative destruction.

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Working Paper	Biblioteca Digital	Colección NBER	nber w22953 (Browse shelf(Opens below))	Not For Loan

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Previous	nber w22950 Targeting Policies: Multiple Testing and Distributional Treatment Eﬀects /	nber w22951 Interfirm Relationships and Business Performance /	nber w22952 Some Simple Economics of the Blockchain /	nber w22953 How Destructive is Innovation? /	nber w22954 A Behavioral New Keynesian Model /	nber w22955 Agricultural Fires and Infant Health /	nber w22956 Energy Efficiency Standards Are More Regressive Than Energy Taxes: Theory and Evidence /	Next

December 2016.

Entrants and incumbents can create new products and displace the products of competitors. Incumbents can also improve their existing products. How much of aggregate productivity growth occurs through each of these channels? Using data from the U.S. Longitudinal Business Database on all nonfarm private businesses from 1983 to 2013, we arrive at three main conclusions: First, most growth appears to come from incumbents. We infer this from the modest employment share of entering firms (defined as those less than 5 years old). Second, most growth seems to occur through improvements of existing varieties rather than creation of brand new varieties. Third, own-product improvements by incumbents appear to be more important than creative destruction. We infer this because the distribution of job creation and destruction has thinner tails than implied by a model with a dominant role for creative destruction.