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Missing Growth from Creative Destruction

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  • Philippe Aghion
  • Antonin Bergeaud
  • Timo Boppart
  • Peter J. Klenow
  • Huiyu Li

Abstract

Statistical agencies typically impute inflation for disappearing products from the inflation rate for surviving products. As some products disappear precisely because they are displaced by better products, inflation may be lower at these points than for surviving products. As a result, creative destruction may result in overstated inflation and understated growth. We use a simple model to relate this ?missing growth? to the frequency and size of various kinds of innovations. Using U.S. Census data, we then apply two ways of assessing the magnitude of missing growth for all private nonfarm businesses for 1983?2013. The first approach exploits information on the market share of surviving plants. The second approach applies indirect inference to firm-level data. We find: (i) missing growth from imputation is substantial?0.5 percentage points per year when using the first approach, 1 percentage point per year using the second method; and (ii) almost all of the missing growth is due to creative destruction (as opposed to new varieties).

Suggested Citation

  • Philippe Aghion & Antonin Bergeaud & Timo Boppart & Peter J. Klenow & Huiyu Li, 2017. "Missing Growth from Creative Destruction," Working Paper Series 2017-4, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfwp:2017-04
    DOI: 10.24148/wp2017-04
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    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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