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How Destructive Is Innovation?
Author(s) -
GarciaMacia Daniel,
Hsieh ChangTai,
Klenow Peter J.
Publication year - 2019
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.3982/ecta14930
Subject(s) - competitor analysis , creative destruction , nonfarm payrolls , business , distribution (mathematics) , productivity , industrial organization , job creation , product (mathematics) , aggregate (composite) , economics , marketing , labour economics , market economy , ecology , mathematical analysis , geometry , mathematics , macroeconomics , materials science , composite material , biology , agriculture
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.