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.
A Theory of Falling Growth and Rising Rents
P. Aghion,A. Bergeaud,T. Boppart,Peter J. Klenow,Huiyu Li
Published 2019 in Federal Reserve Bank of San Francisco, Working Paper Series
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- Publication year
2019
- Venue
Federal Reserve Bank of San Francisco, Working Paper Series
- Publication date
2019-03-27
- Fields of study
Economics
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