First, using several different measures that capture the levels of dynamism and innovation
in the economy, we find that the rate of creative destruction among public firms in the U.S.
increases during our sample period.

They will list the various measures that they utilise later in the paper that have some really major issues associated with them. The sample period is from 1960-2009. This encompasses a number of important historical developments in the US so the period is a good one I think.

Like Fogel, Morck, and Yeung (2008), we use big business
turnover as a measure of economic dynamism, and find that turnover among the largest firms
increases significantly during our sample period.

This is the first of their statistical measures:

Big Business Share Turnover. Big business share turnover is the aggregate, beginning of
period market share of the big businesses that exit the big business decile during a period. To
compute this measure, we measure the market share of each firm in the top revenue decile.
Market share is the firm’s revenue in year t-5, scaled by the aggregate revenue of all of the firms
in the top revenue decile in year t-5. Big Business Share Turnover is the aggregate market share
in year t-5 of the firms that are no longer in the top revenue decile in year t.

I have some reservations on this methodology, however we will see why later when some of their assumptions with regard to the calculation of revenues becomes more clear. Apart from these initial concerns, I have an issue with this in that does this actually measure innovation? It seems to measure increasing/decreasing dominance of firms within an industry due to competition and business decisions that effect that competitiveness. This is not innovation. It would probably include evolution.

We generate additional turnover measures that
capture aggregate changes in market share and value-added, and find that all of these measures
exhibit positive and significant trends during our sample period. The firms gaining market share
are increasingly faster growing relative to the firms that suffer losses in market share.

As we’ll see, these additional measures are pretty irrelevant. They in no shape or form relate to innovation at all.

These “creator” firms exhibit increasingly high growths in total factor productivity (TFP), value-added,
and profit margins relative to the firms that they replace, which is consistent with increasing
innovation.

Let us just for the moment accept at face value the authors claim that these measures do in point of fact measure innovation. Could these measures also be a measure of other variables? If so, how would you differentiate the innovative component from the other variables? Take one example, Profit Margins: could profit margins increase in any way other than solely through Innovation? The answer is definitely yes. I’ll be looking at the ways when I address their measures later in the paper.

Also consistent with increasing innovation, creators spend increasingly more on
R&D, and have increasingly more patent grants relative to firms that lose market share.

This opens an interesting area with regard to patents. I have some quite interesting theory and data that refutes this initial assertion, but again, more on this later.

Taken in their entirety, our findings are consistent with the rate of creative destruction among public firms
increasing during the last half century.

Well I will argue, not even close. But this will be developed as the various data are analysed and causation assigned.

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