A Theory of Falling Growth and Rising Rents

By Philippe Aghion, Antonin Bergeaud, T. Boppart, Peter J. Klenow, Huiyu Li. Federal Reserve Bank of San Francisco, Working Paper Series, 2019

230 citations recorded by the source corpus.

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 ICT advances. In response, the most efficient firms spread into new markets, thereby generating a temporary burst of growth. Because their efficiency is difficult to imitate, less efficient firms find their markets more difficult to enter profitably and innovate less. Even the most efficient firms do less innovation eventually because they are more likely to compete with each other if they try to expand further.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/fd0c3dda07c1ad3ba69b0b1c29aa44d86c7e8ffd

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Citations in the corpus

Heterogeneous Markups, Growth, and Endogenous Misallocation (2020, background): “A growing literature also analyzes the consequences of the declining dynamism in the US on markups, the aggregate labor share, and misallocation (Decker et al., 2014; Haltiwanger et al., 2015; Akcigit and Ates, 2019; Aghion et al., 2019; Peters and Walsh, 2019; Edmond et al., 2018).”
Are Price-Cost Markups Rising in the United States? A Discussion of the Evidence (2019, unknown): “Aghion et al. (2019) suggest that high markups may lead to first higher and then lower rates of total factor productivity growth.”
From Good to Bad Concentration? US Industries over the Past 30 Years (2019, background): “If the increase is driven by γ, however, the prediction could flip: volatility of market shares could fall as leaders’ comparative advantage become (potentially) more persistent (e.g., Aghion et al. (2018)).”
The Elusive Explanation for the Declining Labor Share (2021, background): “However, Aghion et al. (2019) and De Ridder (2020) show that a one-time improvement in ICT can generate a subsequent slowdown in productivity growth.”
The Fall of the Labor Share and the Rise of Superstar Firms* (2017, unknown): “Santaeulalia-Lopis, and Zheng (2018), Aghion et al. (2019), Lashkari, Bauer,”
Connecting to Power: Political Connections, Innovation, and Firm Dynamics (2018, background): “Several other papers, such as Gutiérrez and Philippon (2016, 2017), Aghion et al. (2019) show that an increase in market power is related to the decline in investments in the U.S. Similarly, in this paper, we demonstrate that an increase in firm power through political connections potentially…”