← Search

American Economic Review Vol. 100 No. 3 2010

Product Creation and Destruction: Evidence and Price Implications

Christian Broda1; David E. Weinstein2

1 University of Chicago Booth School of Business, 5807 South Woodlawn Avenue, Chicago, IL 60637. · 2 Department of Economics, Columbia University, 420 W. 118th St. MC3308, New York, NY 10025.

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.

DOI
10.1257/aer.100.3.691
Volume
100
Issue
3
Pages
691-723
Language
en
Sources
openalex bibtex:phds-export.bib crossref

Cite