The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Creative Destruction

  • Ricardo J. Caballero
Reference work entry


Creative destruction refers to the incessant product and process innovation mechanism by which new production units replace outdated ones. This restructuring process permeates major aspects of macroeconomic performance, not only long-run growth but also economic fluctuations, structural adjustment and the functioning of factor markets. Over the long run, the process of creative destruction accounts for over 50 per cent of productivity growth. At business cycle frequency, restructuring typically declines during recessions, and this add a significant cost to downturns. Obstacles to the process of creative destruction can have severe short- and long-run macroeconomic consequences.


Banking reform Business cycles Canada–US Free Trade Agreement Creative destruction Deregulation of product markets Economic growth Factor reallocation Hayek, F. Innovation International competition Job flows Job security Labour market regulation Liquidationist thesis Productivity growth Recessions Robbins, L. Schumpeter, J. Structural change 

JEL Classifications

D4, D10 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Ricardo J. Caballero
    • 1
  1. 1.