A Theory of Falling Growth and Rising Rents

Philippe Aghion (), Antonin Bergeaud, Timo Boppart, Peter Klenow and Huiyu Li
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Philippe Aghion: INSEAD - Institut Européen d'administration des Affaires, LSE - London School of Economics and Political Science, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, Collège de France - Chaire Economie des institutions, de l'innovation et de la croissance - CdF (institution) - Collège de France
Peter Klenow: Stanford University, NBER - National Bureau of Economic Research [New York] - NBER - The National Bureau of Economic Research
Huiyu Li: Federal Reserve Bank of San Francisco

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Abstract: Growth has fallen in the U.S. amid a rise in firm concentration. Market share has shifted to low labour share firms, while within-firm labour shares have actually risen. We propose a theory linking these trends in which the driving force is falling overhead costs of spanning multiple products or a rising efficiency advantage of large firms. In response, the most efficient firms (with higher markups) spread into new product lines, thereby increasing concentration and generating a temporary burst of growth. Eventually, due to greater competition from efficient firms, within-firm markups and incentives to innovate fall. Thus our simple model can generate qualitative patterns in line with the observed trends.

Keywords: Productivity growth slowdown; Concentration; Markups; IT revolution; Overhead costs (search for similar items in EconPapers)
Date: 2023-11
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Published in Review of Economic Studies, 2023, 90 (6), pp.2675-2702. ⟨10.1093/restud/rdad016⟩

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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 (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)
Working Paper: A Theory of Falling Growth and Rising Rents (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-04330700

DOI: 10.1093/restud/rdad016

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