A Theory of Falling Growth and Rising Rents

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

No 26448, NBER Working Papers from National Bureau of Economic Research, Inc

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 firm-level 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.

JEL-codes: O31 O47 O51 (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-com
Note: EFG PR
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Published as Philippe Aghion & Antonin Bergeaud & Timo Boppart & Peter J Klenow & Huiyu Li, 2023. "A Theory of Falling Growth and Rising Rents," Review of Economic Studies, vol 90(6), pages 2675-2702.

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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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