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.

Article Citation

Bergeaud, Antonin, Huiyu Li, Peter J. Klenow, Philippe Aghion, and Timo Boppart. 2019. “A Theory of Falling Growth and Rising Rents,” Federal Reserve Bank of San Francisco Working Paper 2019-11. Available at https://doi.org/10.24148/wp2019-11

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