A Theory of Falling Growth and Rising Rents

Philippe Aghion, Antonin Bergeaud, Timo Boppart, Peter J. Klenow and Huiyu Li

Working papers from Banque de France

Abstract: Growth has fallen in the U.S., while firm concentration and profits have risen. Meanwhile, labor s share of national income is down, mostly due to the rising market share of low labor share firms. We propose a theory for these trends in which the driving force is falling firmlevel costs of spanning multiple markets, perhaps due to accelerating IT advances. In response, the most efficient firms (with higher markups) spread into new markets, thereby generating a temporary burst of growth. Because their efficiency is difficult to imitate, less efficient firms find markets more difficult to enter profitably and therefore innovate less. Eventually, due to greater competition from efficient firms, within-firm markups actually fall. Despite the increase in the aggregate markup and rents, firm incentives to innovate decline lowering the long run growth rate.

Keywords: : Labor Income Share; Concentration; Growth; Markups (search for similar items in EconPapers)
JEL-codes: O31 O47 O51 (search for similar items in EconPapers)
Pages: 64 pages
Date: 2019
New Economics Papers: this item is included in nep-bec and nep-com
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Citations: View citations in EconPapers (106)

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Related works:
Journal Article: A Theory of Falling Growth and Rising Rents (2023)
Working Paper: A Theory of Falling Growth and Rising Rents (2023)
Working Paper: A Theory of Falling Growth and Rising Rents (2023)
Working Paper: A Theory of Falling Growth and Rising Rents (2022)
Working Paper: A Theory of Falling Growth and Rising Rents (2019)
Working Paper: A Theory of Falling Growth and Rising Rents (2019)
Working Paper: A Theory of Falling Growth and Rising Rents (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:740

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