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The dark side of creative destruction: innovation and retirement of capital

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  • Abdul Azeez Erumban
  • Marcel P. Timmer

Abstract

The process of creative destruction, while propelling the economy, also leads to obsolescence and discarding of capital. To date, there is limited empirical evidence on actual discard behavior by firms and its determinants. Building on insights from the theoretical literature on economic growth and obsolescence, this article makes an attempt to understand the determinants of scrapping, with a special focus on the role of innovation. The article uses a unique database on asset retirements by manufacturing firms in the Netherlands and relates it to a range of economic and innovation variables. We find that innovation plays a significant role in determining the discard of capital assets. Process innovation by a firm is important in the case of machinery scrapping, while the introduction of a new product in a firm increases discards of computers. We also find evidence for an obsolescence effect: the average age has a significant role in discarding, in particular, computers. We find no evidence for a significant role of output and wage rates in driving capital discard. Copyright 2012 The Author 2012. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved., Oxford University Press.

Suggested Citation

  • Abdul Azeez Erumban & Marcel P. Timmer, 2012. "The dark side of creative destruction: innovation and retirement of capital," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 21(5), pages 1149-1174, October.
    • Handle: RePEc:oup:indcch:v:21:y:2012:i:5:p:1149-1174
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    File URL: http://hdl.handle.net/10.1093/icc/dts005
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    Cited by:

    1. Erumban, Abdul A. & Das, Deb Kusum, 2016. "Information and communication technology and economic growth in India," Telecommunications Policy, Elsevier, vol. 40(5), pages 412-431.
    2. Mojca Svetek & Mateja Drnovsek, 2022. "Exploring the Effects of Types of Early-Stage Entrepreneurial Activity on Subjective Well-Being," Journal of Happiness Studies, Springer, vol. 23(1), pages 149-170, January.
    3. Ana Rincon-Aznar & Rebecca Riley & Garry Young, 2017. "Academic Review of Asset Lives in the UK," National Institute of Economic and Social Research (NIESR) Discussion Papers 474, National Institute of Economic and Social Research.
    4. Ardito, Lorenzo & Raby, Simon & Albino, Vito & Bertoldi, Bernardo, 2021. "The duality of digital and environmental orientations in the context of SMEs: Implications for innovation performance," Journal of Business Research, Elsevier, vol. 123(C), pages 44-56.

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