International Monetary Fund
700 19th St NW
Washington, DC 20431
Institutional Affiliation: International Monetary Fund
NBER Working Papers and Publications
|December 2016||How Destructive is Innovation?|
with Chang-Tai Hsieh, Peter J. Klenow: w22953
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 c...