ABSTRACT

Creative Destruction and the Measurement of Productivity Change

CRIC Discussion Paper No. 75

Stan Metcalfe and Ronnie Ramlogan

The paper provides a brief assessment of the industrial dynamics literature linking innovation to productivity growth. First, it ‘constructively’, shows that the population method drawn from evolutionary theory provides a coherent frame in which the various processes impinging on productivity change can be integrated. It then explains how the growth of productivity in a population obeys one of the fundamental principles of evolutionary dynamics – the Fisher/Price theorem – which demonstrates how the rate and direction of change depends on variation and correlation of characteristics in a population. Secondly, and ‘destructively’, it identifies some of the puzzles and ambiguities that arise from decomposing any aggregate measure of productivity growth into effects that arise from innovation processes and those which reflect selection process and the changing relative importance of entities in a population. It also shows that there is no unique way of making this decomposition. This is an important matter because the transmission process between innovation and changing resource allocation underpins the process by which standards of living are raised in the narrow sense and the process of economic development in the broad sense.

[View Paper] [Back to CRIC Papers]