AEA Papers and Proceedings
ISSN 2574-0768 (Print) | ISSN 2574-0776 (Online)
Quality Adjustment in Industry Deflators Strengthens Estimated Innovation-Productivity Relationships
AEA Papers and Proceedings
(pp. 446–451)
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.Citation
Atalay, Enghin, Ali Hortaçsu, Nicole Kimmel, and Chad Syverson. 2026. "Quality Adjustment in Industry Deflators Strengthens Estimated Innovation-Productivity Relationships." AEA Papers and Proceedings 116: 446–451. DOI: 10.1257/pandp.20261042Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- E23 Macroeconomics: Production
- E31 Price Level; Inflation; Deflation
- L60 Industry Studies: Manufacturing: General
- O31 Innovation and Invention: Processes and Incentives
- O34 Intellectual Property and Intellectual Capital