This article studies how industry innovation translates into subsequent productivity growth. It reviews a method that uses gaps between consumer- and producer-facing price indices to estimate mismeasurement in industry TFP growth. Measured productivity growth is understated in manufacturing, especially in durable goods, with the largest mismeasurement in Computer and Electronic Product Manufacturing. Correcting for this mismeasurement roughly doubles the estimated slope of the relationship between innovation proxies—R&D intensity and patents per employee—and subsequent TFP growth. These findings reflect rapid changes in product characteristics in innovative industries that standard industry deflators do not fully capture.
Atalay et al. (2026) studied this question.