Technological Innovation, Resource Allocation, and Growth*

Abstract We propose a new measure of the economic importance of each innovation. Our measure uses newly collected data on patents issued to U.S. firms in the 1926 to 2010 period, combined with the stock market response to news about patents. Our patent-level estimates of private economic value are positively related to the scientific value of these patents, as measured by the number of citations the patent receives in the future. Our new measure is associated with substantial growth, reallocation, and creative destruction, consistent with the predictions of Schumpeterian growth models. Aggregating our measure suggests that technological innovation accounts for significant medium-run fluctuations in aggregate…