Econometrica: Jan 2022, Volume 90, Issue 1

Low Interest Rates, Market Power, and Productivity Growth

https://doi.org/10.3982/ECTA17408
p. 193-221

Ernest Liu, Atif Mian, Amir Sufi

This study provides a new theoretical result that a decline in the longā€term interest rate can trigger a stronger investment response by market leaders relative to market followers, thereby leading to more concentrated markets, higher profits, and lower aggregate productivity growth. This strategic effect of lower interest rates on market concentration implies that aggregate productivity growth declines as the interest rate approaches zero. The framework is relevant for antitrust policy in a low interest rate environment, and it provides a unified explanation for rising market concentration and falling productivity growth as interest rates in the economy have fallen to extremely low levels.



Log In To View Full Content

Supplemental Material

Supplement to "Low Interest Rates, Market Power, and Productivity Growth"

This zip file contains the replication files for the manuscript.

Read More View ZIP


Supplement to "Low Interest Rates, Market Power, and Productivity Growth"

This online appendix contains material not found within the manuscript.

Read More View PDF



Back