Product diversification, creation and destruction: Micro evidence and aggregate implications
using a novel plant-level dataset from Taiwan (1992-2004), that new product introductions are a key contributor to increases in plant-level factor productivity. We then formulate and calibrate a span-of-control model of product choice and firm dynamics in which new products embody the frontier of knowledge and firms can introduce new products subject to a fixed cost as well as discard old products. We use the model to quantify the importance of the new product margin in accounting for aggregate TFP growth, as well as to quantify the welfare losses from frictions that inhibit the process of product creation and destruction.
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