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American Economic Review: Vol. 100 No. 3 (June 2010)

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Product Creation and Destruction: Evidence and Price Implications

Article Citation

Broda, Christian, and David E. Weinstein. 2010. "Product Creation and Destruction: Evidence and Price Implications." American Economic Review, 100(3): 691-723.

DOI: 10.1257/aer.100.3.691

Abstract

This paper describes the extent of product creation and destruction in a large sector of the US economy. We find four times more entry and exit in product markets than is found in labor markets because most product turnover happens within firms. Net product creation is strongly procyclical and primarily driven by creation rather than destruction. We find that a cost-of-living index that takes product turnover into account is 0.8 percentage points per year lower than a "fixed goods" price index like the CPI. The procyclicality of the bias implies that business cycles are more volatile than indicated by official statistics. (JEL E31, E32, L11, O31)

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Authors

Broda, Christian (U Chicago)
Weinstein, David E. (Columbia U)

JEL Classifications

E31: Price Level; Inflation; Deflation
E32: Business Fluctuations; Cycles
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
O31: Innovation and Invention: Processes and Incentives


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