Missing Growth from Creative Destruction

Klenow, Pete; Li, Huiyu

Missing Growth from Creative Destruction

FRBSF Economic Letter, 2017

Abstract: When products disappear from the market with no substitutes from the same manufacturer, they may have been replaced by cheaper or better products from a different manufacturer. Official measurements typically approximate price changes from such creative destruction using price changes for products that were not replaced. This can lead to overstating inflation and, in turn, understating economic growth. A recent estimate suggests that around 0.6 percentage point of growth is missed per year. The bias has not increased over time, however, so it does not explain the slowdown in productivity growth.

Date: 2017
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