A theory of falling growth and rising rents
Philippe Aghion, Antonin Bergeaud, Timo Boppart, Peter J. Klenow and Huiyu Li
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.
6 November 2023
The Review of Economic Studies 90(6) , pp.2675?2702, 2023
https://academic.oup.com/restud/article/90/6/2675/7048489
This Journal article is published under the centre's Growth programme.