Review of Economic Studies Vol. 90 No. 6 2023

A Theory of Falling Growth and Rising Rents

Philippe Aghion¹; Antonin Bergeaud²; Timo Boppart³; Peter J. Klenow⁴; Huiyu Li⁵

¹ Collège de France, INSEAD, and London School of Economics · ² HEC Paris, CEP LSE, and CEPR () · ³ IIES, Stockholm University and University of St. Gallen · ⁴ Stanford University and NBER · ⁵ 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.

DOI

10.1093/restud/rdad016

Volume

90

Issue

6

Pages

2675-2702

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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