The Creativity Decline : Evidence from US Patents

Economists have long struggled to understand why aggregate TFP growth has dropped in recent decades while the number of new patents filed has steadily increased. I offer an explanation for this puzzling divergence: the creativity embodied in US patents has dropped dramatically over time. To separate creative from derivative patents, I develop a novel, text-based, measure of patent creativity: the share of two-word combinations that did not appear in previous patents. I show that only creative and not derivative patents are associated with significant improvements in firm level productivity and stock market valuations. Using the measure, I show that younger inventors on average file more creative patents. To estimate the effect of changing US demographics on aggregate creativity and productivity growth, I build a growth model with endogenous creation and adoption of technologies. In this model, falling population growth explains 42% of the observed decline in patent creativity, 32% of the slowdown in productivity growth, and 15% of the increase in derivative patenting