Indices that capture creative destruction: questions and implications

Abstract

The paper argues that micro and macro economists interested in the dynamics of creative destruction can gain important insights by using indices that capture the effect of innovation on the relative position of firms. This is due to the uneven and “destructive” effect that radical innovation has on firm rankings. One such index is the market share instability index. On the financial side, the excess volatility of stock prices and idiosyncratic risk also appear to capture the uneven dynamics of creative destruction. The paper concludes by considering the implications of these propositions for economy-wide growth during periods of radical innovation (e.g. GPTs).