Destruction from 9/11 led to a disproportionate level of business growth in New York City, study indicates

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It is widely accepted that entrepreneurial creation affects destruction, as new and better organizations, technologies and transactions replace old ones. This phenomenon is labeled creative destruction, but it might more accurately be called destructive creation, given the driving role of creation in the process.

In a revealing new study, Srikanth Paruchuri and Paul Ingram reverse the typical causal ordering, and ask whether destruction may drive creation. They argue that economic systems may get stuck in suboptimal equilibria due to path dependence, and that destruction may sweep away this inertia, and open the way for entrepreneurship. To test this idea, Paruchuri and Ingram needed an exogenous destructive shock, rather than destruction that is endogenous to the process of economic progress. Their identification strategy relies on the September 11 attacks as an exogenous destructive shock to the economic system centered on New York City. Consistent with their theoretical claim, Paruchuri and Ingram find that 15 months after the attacks the rate of business founding close to New York City exceeds the rate before the attacks, even after controlling for the inflow of recovery funds. Furthermore, the increase in the business founding rate after the attacks grows faster closer to Manhattan than it does further away from the epicenter of destruction.

Peter Schorsch is the President of Extensive Enterprises and is the publisher of some of Florida’s most influential new media websites, including SaintPetersBlog.com, FloridaPolitics.com, ContextFlorida.com, and Sunburn, the morning read of what’s hot in Florida politics. SaintPetersBlog has for three years running been ranked by the Washington Post as the best state-based blog in Florida. In addition to his publishing efforts, Peter is a political consultant to several of the state’s largest governmental affairs and public relations firms. Peter lives in St. Petersburg with his wife, Michelle, and their daughter, Ella.