Declining Competition and Investment in the U.S. German Gutierrez and Thomas Philippon. NBER Working Paper, July 2017. http://www.nber.org/papers/w23583
Abstract: The U.S. business sector has under-invested relative to
Tobin's Q since the early 2000's. We argue that declining competition is
partly responsible for this phenomenon. We use a combination of natural
experiments and instrumental variables to establish a causal
relationship between competition and investment. Within manufacturing,
we show that industry leaders invest and innovate more in response to
exogenous changes in Chinese competition. Beyond manufacturing we show
that excess entry in the late 1990's, which is orthogonal to demand
shocks in the 2000's, predicts higher industry investment given Q.
Finally, we provide some evidence that the increase in concentration can
be explained by increasing regulations.
Wednesday, August 16, 2017
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