System Working Paper 18-01

Missing Growth from Creative Destruction

Philippe Aghion | College de France and London School of Economics
Antonin Bergeaud | London School of Economics
Timo Boppart | IIES, Stockholm University
Peter J. Klenow | Consultant
Huiyu Li | Federal Reserve Bank of San Francisco

Published January 2, 2018

Statistical agencies typically impute inflation for disappearing products based on surviving products, which may result in overstated inflation and understated growth. Using U.S. Census data, we apply two ways of assessing the magnitude of “missing growth” for private nonfarm businesses from 1983–2013. The first approach exploits information on the market share of surviving plants. The second approach applies indirect inference to firm-level data. We find: (i) missing growth from imputation is substantial — at least 0.6 percentage points per year; and (ii) most of the missing growth is due to creative destruction (as opposed to new varieties).

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