Product Creation and Destruction: Evidence and Price Implications
American Economic Review
vol. 100,
no. 3, June 2010
(pp. 691-723)
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)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.100.3.691Additional Materials
JEL Classification
- 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