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Declining Competition and Investment in the U.S

Germán Gutiérrez and Thomas Philippon ()

No 23583, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The U.S. business sector has under-invested relative to Tobin's Q since the early 2000's. We argue that declining competition is partly responsible for this phenomenon. We use a combination of natural experiments and instrumental variables to establish a causal relationship between competition and investment. Within manufacturing, we show that industry leaders invest and innovate more in response to exogenous changes in Chinese competition. Beyond manufacturing we show that excess entry in the late 1990's, which is orthogonal to demand shocks in the 2000's, predicts higher industry investment given Q. Finally, we provide some evidence that the increase in concentration can be explained by increasing regulations.

JEL-codes: D4 E22 G31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-com and nep-mac
Date: 2017-07
Note: CF EFG IO ME PE PR
References: View references in EconPapers View complete reference list from CitEc
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