Working Paper: NBER ID: w22953
Authors: Daniel Garcia-Macia; Changtai Hsieh; Peter J. Klenow
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.
Keywords: Innovation; Productivity Growth; Creative Destruction; Own Innovation
JEL Codes: E24; O3; O4; O5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| age of firms (L25) | productivity growth (O49) |
| existing quality improvements (L15) | productivity growth (O49) |
| own-product improvements (L15) | job creation and destruction (J63) |
| creative destruction (O39) | job creation and destruction (J63) |
| creative destruction contributes 25% of total growth (O49) | total growth (O40) |
| own innovation by incumbents (O36) | productivity growth (O49) |
| role of incumbents increases (D72) | productivity growth (O49) |