Low Interest Rates, Market Power, and Productivity Growth

By Ernest Liu, Atif R. Mian, Amir Sufi. Social Science Research Network, 2019

145 citations recorded by the source corpus.

This study provides a new theoretical result that a decline in the long‐term interest rate can trigger a stronger investment response by market leaders relative to market followers, thereby leading to more concentrated markets, higher profits, and lower aggregate productivity growth. This strategic effect of lower interest rates on market concentration implies that aggregate productivity growth declines as the interest rate approaches zero. The framework is relevant for antitrust policy in a low interest rate environment, and it provides a unified explanation for rising market concentration and falling productivity growth as interest rates in the economy have fallen to extremely low levels.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/8b8c28596ade147dd1a524b06f22b7533ee141a4

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Citations in the corpus

Market Power and Innovation in the Intangible Economy (2019, background): “Liu et al. (2019) relate low productivity and business dynamism to a decline in interest rates in a model where two firms compete for leadership through R&D.”
Zombie Credit and (Dis-)Inflation: Evidence from Europe (2020, background): “5Peek and Rosengren (2005) document that weakly-capitalized banks extended credit to their weak borrowers to avoid realizing losses on outstanding loans; Caballero et al.”
The Long-Run Effects of Monetary Policy (2020, background): “3 Of the recent papers, Moran and Queraltó (2018) use three-equation VAR models to emphasize an empirical link between TFP growth and monetary policy shocks. We differ in two important ways. One, we investigate and establish that monetary policy shocks can affect level of GDP, capital stock as well ”
What Happened to US Business Dynamism? (2019, unknown): “These mechanisms are a secular decline in the interest rate (Eggertsson et al., 2018; Liu et al., 2019), a decline in research productivity (implying that ideas are getting harder to find; Gordon, 2016, and Bloom et al.”