A Theory of Falling Growth and Rising Rents


Philippe Aghion

Antonin Bergeaud

Timo Boppart

Peter J. Klenow

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2019-11 | October 1, 2022

Growth has fallen in the U.S. amid a rise in firm concentration. Market share has shifted to low labor share firms, while within-firm labor 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.

About the Author
Huiyu Li
Huiyu Li is a research advisor in the Economic Research Department of the Federal Reserve Bank of San Francisco. Learn more about Huiyu Li