RT Dissertation/Thesis
T1 Essays in Macroeconomics
A1 Feijoo Moreira, Sergio Alejandro
AB During the last three decades, there have been many fundamental changes regarding theevolution of most advanced economies, particularly the United States. Some remarkabletrends characterizing this evolution are the decline in business dynamism, the increasein average pro ts and average markups of  rms, the rise in market concentration, theincrease of robotization and automation, the decline in the labor share, the decline inthe entry rate of new  rms, and the stagnation of productivity growth. The combinationof these facts has raised concerns, among others, about increasing inequality, decliningentrepreneurship due to the crowding-out of new entrants, and declining consumer purchasingpower. Although identifying the reasons underlying these facts is crucial froma policy-making perspective, there is little agreement on these macroeconomic trends'underlying cause(s). This dissertation consists of two chapters that attempt to shed lighton this discussion.In the first chapter, `Inside the decline of the labor share: Bringing the tales together',I analyze the decline in the United States labor income share during the last two decades.This decline has been widely documented in the economic literature and is also contemporaneousto a strong structural change process from manufacturing to services. In otherwords, during the last two decades, the U.S. has continued its transformation into a moreservice-oriented economy. In particular, I document the following trends regarding bothphenomena: i) the evolution of the labor share of income is widely heterogeneous acrossindustries, with a much more substantial decline in manufacturing than in services; ii) theaverage wage, employment, and value added - the main components of the labor share -exhibit a different pattern between manufacturing and services industries; iii) there is astrong (relative) reallocation of labor and capital from manufacturing to services industries;and iv) substantial capital deepening has taken place, increasing of the capital-laborratio of the economy together with the capital-output ratio of the economy.I analyze both phenomena through the lens of a multi-sector model in which the mainmechanisms that have been proposed to explain the decline in the labor share - biased technological change and market power - also affect the process of structural changebetween sectors. Moreover, I show that structural change is relevant for the overall laborshare as it affects the weight of each industry's labor share. I use the model to inferthe rate of technological change and market power - in the form of exogenous markups- that match the U.S. data. The model can explain up to 87.4% of the decline in thelabor share of the U.S. economy. Moreover, I find that the increase in markups in themanufacturing and services industries is the main reason underlying the decline. Theremaining part is accounted for by technological change, which after 2008 becomes moreimportant in explaining the decline in the labor share, especially in services industries.Although market power also a ects the pace of structural change from manufacturing toservices, I show that technological change is its fundamental driver.In the second chapter, `Provider-driven complementarity and firm dynamics', I concentrateon the significant decline in business dynamism experienced in the U.S. since themid-1980s. This decline is (non-exhaustively) characterized by the following trends: i)the entry rate of new firms has declined; ii) market concentration, measured by the shareof sales accruing to the biggest firms, has increased; iii) expenditure on R&D activities,measured both as a fraction of total cost or total sales, has increased; and iv) the growthrate of the economy has slowed down.I offer a new explanation based on the assumption of provider-driven complementarity,which makes seemingly independent products become complements when providedby a single firm. Provider-driven complementarity boils down to the idea that duringthe process of product innovation - the introduction of new and improved products tothe market - firms can embed differential characteristics to their products. These characteristicsare such that, absent quality differences across products, consuming severalgoods from a single provider is preferable to purchasing each good from a di erent firm.Based on this idea, I propose a framework that explains increasing R&D expendituresand concentration yet decreasing entry rates and economic growth.Theoretically, I develop a quality ladder growth model where provider-driven complementarityis crucial in determining firms' incentives to challenge incumbents in theirestablished markets. Specifically, I assume that the complementarity effect increases inthe number of products supplied by each firm. Moreover, consumers buy each good fromthe firm that delivers the highest quality, adjusted by provider-driven complementarity,relative to its market price. I show that provider-driven complementarity generates anendogenous barrier to entry in new markets. Consequently, despite firms use innovationto increase profits, it also affects firms' industrial organization and can ultimately deter firm entry.I use the theory of provider-driven complementarity to perform a quantitative exercisein which I reduce the size of the average quality jump obtained after any successfulinnovation. The exercise is motivated by the recent literature on ideas becoming harderto find and can also be thought of as innovations becoming less radical over time. Ishow that such decline induces a growth slowdown. Additionally, I find that the entryrate declines, and incumbents become bigger and spend more resources on R&D, evenas the economy's overall growth rate declines. This contrasts with the predictions of astandard quality ladder model without provider-driven complementarities, which impliesthe reverse.
YR 2021
FD 2021-03
LK https://hdl.handle.net/10016/33056
UL https://hdl.handle.net/10016/33056
LA eng
DS e-Archivo
RD 1 sept. 2024