Empirical confirmation of creative destruction from world trade data

TL;DR

This paper provides empirical evidence from world trade data that supports Schumpeter's theory of creative destruction, showing how innovation leads to the replacement of existing products and drives economic complexity and growth.

Contribution

It empirically validates the concept of creative destruction using trade data, demonstrating cascading product replacements and the directional progress of economic complexity.

Findings

Products tend to co-appear and lead to the disappearance of existing products.

Product appearances precede massive disappearance events, confirming creative destruction.

More complex products tend to replace less complex ones, indicating directional progress.

Abstract

We show that world trade network datasets contain empirical evidence that the dynamics of innovation in the world economy follows indeed the concept of creative destruction, as proposed by J.A. Schumpeter more than half a century ago. National economies can be viewed as complex, evolving systems, driven by a stream of appearance and disappearance of goods and services. Products appear in bursts of creative cascades. We find that products systematically tend to co-appear, and that product appearances lead to massive disappearance events of existing products in the following years. The opposite - disappearances followed by periods of appearances - is not observed. This is an empirical validation of the dominance of cascading competitive replacement events on the scale of national economies, i.e. creative destruction. We find a tendency that more complex products drive out less complex ones, i.e. progress has a direction. Finally we show that the growth trajectory of a country's product output diversity can be understood by a recently proposed evolutionary model of Schumpeterian economic dynamics.