How Destructive is Innovation? · Apple vs. Blackberry/Nokia Amazon vs. independent...
Transcript of How Destructive is Innovation? · Apple vs. Blackberry/Nokia Amazon vs. independent...
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How Destructive is Innovation?
Daniel Garcia-Macia (IMF)
Chang-Tai Hsieh (Chicago and NBER)
Peter Klenow (Stanford and NBER)
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Sources of Innovation Creative Destruction (Schumpeter, Aghion-Howitt, Grossman-Helpman) Apple vs. Blackberry/Nokia Amazon vs. independent bookstores/Borders Boeing 777 vs. Airbus A340 Uber vs. Taxi Google vs. Newspapers
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Sources of Innovation New Varieties (Romer) Own-Variety Improvements Boeing 777 vs. Boeing 747 New iPhone models vs. older iPhone models
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Sources of Innovation Entrants vs. Incumbents
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How do we know? Case Studies Patent Citations Accounting Decomposition
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Our Approach: Model with all three sources of innovation Infer contribution of each type of innovation from patterns of firm growth (LBD 1976-2013) Firms grow when they innovate Grow by “a lot” if creative destruction Grow by “a little” if own innovation Firms shrink when innovated upon
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Main Findings Contributions to Aggregate TFP Growth Incumbents >> Entrants Quality Improvements >> New Varieties Own Innovation > Creative Destruction
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Model: production and employment
Aggregate Output: 1 1
1
M
j jj
Y y q
Production of each variety: 1 1
j j jy l W q
Aggregate TFP:
11 1
11
1
M
jj
M q M
Varietyq Average Quality
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Key idea: Firm innovation proportional to employment growth
1 1 1 1
1
fM
f j f fj
L W q W M q
Entrants:
Employment of entrants pins down combination of:
# Existing products improved upon by entrants # New products created by entrants
Quality of products made by entrants
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DATA: Employment Share of Entrants
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11, 1 , 1 , 11
, , ,
f t f t f tt
f t t f t f t
L M qWL W M q
Incumbent employment grows:
Steal existing product from another firm
Improve quality of own product
Create new product Incumbent employment falls:
Another firm steals its product
Wages rise
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Incumbents: Own quality improvement vs. business stealing
11, 1 , 1 , 11
, , ,
f t f t f tt
f t t f t f t
L M qWL W M q
Own-variety improvement "modest" employment growth Business stealing "big" employment growth
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Apple’s Employment (in the US) 2001: 11 K (iPod introduced) 2007: 23 K (iPhone introduced) 2008: 35 K 2009: 37 K 2010: 49 K (iPad introduced) 2014: 97 K 2015: 110 K 2016: 116 K
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DATA: Distribution of Job Creation/Destruction
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If only Creative Destruction
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If only Own Innovation
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Estimated Contributions to Growth (1976-1986)
Entrants Incumbents Creative Destruction 19.1 % 8.2 % 27.3 % Creation of New Varieties 0.0 % 7.6 % 7.6 % Own-Variety Improvements - 65.1 % 65.1 % 19.1 % 80.9 %
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DATA: Employment Share of Entrants
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DATA: Job Creation/Destruction Rates
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Contributions to Growth: 1976-1986 vs. 2003-2013 1976-1986 2003-2013 Entrants 19.1% 12.8% Own-Variety Improvements 65.1% 76.7%