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A Theory of Falling Growth and Rising Rents
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.
AUTHORS: Klenow, Peter J.; Aghion, Philippe; Bergeaud, Antonin; Li, Huiyu; Boppart, Timo
Missing Growth from Creative Destruction
Statistical agencies typically impute inflation for disappearing products from the inflation rate for surviving products. As some products disappear precisely because they are displaced by better products, inflation may be lower at these points than for surviving products. As a result, creative destruction may result in overstated inflation and understated growth. We use a simple model to relate this ?missing growth? to the frequency and size of various kinds of innovations. Using U.S. Census data, we then apply two ways of assessing the magnitude of missing growth for all private nonfarm businesses for 1983?2013. The first approach exploits information on the market share of surviving plants. The second approach applies indirect inference to firm-level data. We find: (i) missing growth from imputation is substantial?0.5 percentage points per year when using the first approach, 1 percentage point per year using the second method; and (ii) almost all of the missing growth is due to creative destruction (as opposed to new varieties).
AUTHORS: Bergeaud, Antonin; Boppart, Timo; Aghion, Philippe; Li, Huiyu; Klenow, Peter J.