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Missing Growth from Creative Destruction

Author

Listed:
  • Peter J. Klenow
  • Huiyu Li

Abstract

When products disappear from the market with no substitutes from the same manufacturer, they may have been replaced by cheaper or better products from a different manufacturer. Official measurements typically approximate price changes from such creative destruction using price changes for products that were not replaced. This can lead to overstating inflation and, in turn, understating economic growth. A recent estimate suggests that around 0.6 percentage point of growth is missed per year. The bias has not increased over time, however, so it does not explain the slowdown in productivity growth.

Suggested Citation

  • Peter J. Klenow & Huiyu Li, 2017. "Missing Growth from Creative Destruction," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfel:00146
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    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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