Econometrica

Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

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 long‐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.


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

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

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