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A Theory of Falling Growth and Rising Rents

Author

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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 des Ponts ParisTech - 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 des Ponts ParisTech - 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)

  • Antonin Bergeaud

    (HEC Paris - Ecole des Hautes Etudes Commerciales, CEPR - Center for Economic Policy Research, LSE - London School of Economics and Political Science)

  • Timo Boppart

    (Stockholm University, HSG - University of St.Gallen)

  • 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)

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.

Suggested Citation

  • Philippe Aghion & Antonin Bergeaud & Timo Boppart & Peter Klenow & Huiyu Li, 2023. "A Theory of Falling Growth and Rising Rents," PSE-Ecole d'économie de Paris (Postprint) halshs-04330700, HAL.
    • Handle: RePEc:hal:pseptp:halshs-04330700
    DOI: 10.1093/restud/rdad016
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    as
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    More about this item

    Keywords

    Productivity growth slowdown; Concentration; Markups; IT revolution; Overhead costs;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada

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