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Quality Adjustment in Industry Deflators Strengthens Estimated Innovation-Productivity Relationships

Author

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  • Enghin Atalay
  • Ali Hortaçsu
  • Nicole Kimmel
  • Chad Syverson

Abstract

This article studies how industry innovation translates into subsequent productivity growth. It reviews a method that uses gaps between consumer- and producer-facing price indices to estimate mismeasurement in industry TFP growth. Measured productivity growth is understated in manufacturing, especially in durable goods, with the largest mismeasurement in Computer and Electronic Product Manufacturing. Correcting for this mismeasurement roughly doubles the estimated slope of the relationship between innovation proxies—R&D intensity and patents per employee—and subsequent TFP growth. These findings reflect rapid changes in product characteristics in innovative industries that standard industry deflators do not fully capture.

Suggested Citation

  • Enghin Atalay & Ali Hortaçsu & Nicole Kimmel & Chad Syverson, 2026. "Quality Adjustment in Industry Deflators Strengthens Estimated Innovation-Productivity Relationships," AEA Papers and Proceedings, American Economic Association, vol. 116, pages 446-451, May.
    • Handle: RePEc:aea:apandp:v:116:y:2026:p:446-451
    DOI: 10.1257/pandp.20261042
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    References listed on IDEAS

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    1. Marco Errico & Danial Lashkari, 2025. "Aggregation and the Estimation of Quality Change: Application to U.S. Import Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 140(4), pages 3283-3335.
    2. Nathan Goldschlag & Travis J. Lybbert & Nikolas J. Zolas, 2020. "Tracking the technological composition of industries with algorithmic patent concordances," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 29(6), pages 582-602, August.
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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