Working Papers

2019-11 | November 2020


A Theory of Falling Growth and Rising Rents


Growth has fallen in the U.S. while firm concentration has risen. We propose a theory linking these trends in which the driving force is falling overhead costs of spanning multiple markets. In response, the most efficient firms (with higher markups) spread into new markets, thereby generating a temporary burst of growth. Eventually, due to greater competition from efficient firms, within-firm markups and incentives to innovate fall. When we calibrate our model, we find the rise in market share of more efficient firms outweighs the drop in long-run growth, leaving welfare modestly enhanced by the fall in overhead costs.

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Article Citation

Aghion, Philippe, Antonin Bergeaud, Timo Boppart, Peter J. Klenow, and Huiyu Li. 2019. "A Theory of Falling Growth and Rising Rents," Federal Reserve Bank of San Francisco Working Paper 2019-11. Available at