7️⃣The paper has many more interesting results, including implications for other secular trends & welfare
Check out the paper (jamesparon.com) for these results + details about the empirical evidence, growth model, and estimation!
And other great papers!
6️⃣This decline in research productivity explains most of the 📉 in growth and 📈in market value.
As in the data, all of the market boom comes from a reallocation to high-valuation firms.
Why? High-valuation firms shift from R&D to M&A, concentrating production in their hands
5️⃣He estimates that the decline in R&D-to-value implies that research productivity fell by ~50% since 1975.
In other words, it is half as easy to come up with a new idea today as it was 50 years ago.
4️⃣He builds a Schumpeterian model of growth and asset prices in which heterogeneous firms can grow through R&D and M&A.
After estimating the model, he uses it to:
– Estimate the decline in innovation productivity
– Quantify its effect on economic growth and valuations
3️⃣ He documents 3 key stylized facts about 1970–2020:
– Aggregate R&D fell relative to value
– Aggregate M&A doubled relative to R&D
– A compositional change explains the rise in aggregate valuation ratios: markets are more and more dominated by firms high valuation ratios
2️⃣ The rising market valuation of profits since 1970 should have encouraged firms to innovate, but R&D investment fell.
🧩How do we reconcile stagnating growth (and R&D) with a booming stock market?
James solves this puzzle using micro data and a Schumpeterian growth model.
🧵My coauthor James Paron is on the market!
His paper reconciles apparently contradictory trends since 1970:
📉declining economic growth
📈rising stock market valuations
His explanation: Innovation got harder➡️ R&D fell, M&A rose ➡️ top firms pushed the aggregate stock market up
I will
I am not migrating from Twitter to Bluesky. Rather, I will use this account to tweet more about academic economics and mostly in English. At the same time, I will keep my Twitter account to engage with the general public, French political debates, and general trolling.
