How Destructive is Innovation?

Daniel Garcia-Macia, Chang-Tai Hsieh and Pete Klenow

No 22953, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E24 O3 O4 O5 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-ent, nep-gro, nep-ino, nep-mac and nep-sbm
Note: EFG PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (58)

Published as Daniel Garcia‐Macia & Chang‐Tai Hsieh & Peter J. Klenow, 2019. "How Destructive Is Innovation?," Econometrica, Econometric Society, vol. 87(5), pages 1507-1541, September.

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Journal Article: How Destructive Is Innovation? (2019)
Working Paper: How Destructive is Innovation? (2017)
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