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A Theory of Falling Growth and Rising Rents

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Listed:
  • Philippe Aghion
  • Antonin Bergeaud
  • Timo Boppart
  • Peter J Klenow
  • Huiyu Li

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 J Klenow & Huiyu Li, 2023. "A Theory of Falling Growth and Rising Rents," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(6), pages 2675-2702.
    • Handle: RePEc:oup:restud:v:90:y:2023:i:6:p:2675-2702.
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    File URL: http://hdl.handle.net/10.1093/restud/rdad016
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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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