2017-04 | August 2018
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Missing Growth from Creative Destruction
When products exit due to entry of better products from new producers, statistical agencies typically impute inflation from surviving products. This understates growth if creatively-destroyed products improve more than surviving products. Accordingly, the market share of surviving products should shrink. Using entering and exiting establishments to proxy for creative destruction, we estimate missing growth in U.S. Census data on non-farm businesses from 1983–2013. We find: (i) missing growth is substantial — around half a percentage point per year; but (ii) missing growth did not accelerate much after 2005, and therefore does not explain the sharp slowdown in growth since then.
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Aghion, Philippe, Antonin Bergeaud, Timo Boppart, Peter J. Klenow, and Huiyu Li. 2017. "Missing Growth from Creative Destruction," Federal Reserve Bank of San Francisco Working Paper 2017-04. Available at https://doi.org/10.24148/wp2017-04