Working Papers
Market Power and Innovation in the Intangible Economy
Job Market Paper [VoxEU summary]
This paper offers a unified explanation for the slowdown of productivity growth, the decline in business dynamism and the rise of market power. I claim that the increasing use of intangible inputs – such as software – explains these trends because it causes a shift from variable costs towards fixed costs, which changes the way that firms produce and compete. Using data on the universe of French firms and U.S. publicly listed firms, I first show that the ratio of fixed over total costs rises when firms invest in intangibles. I then develop a quantitative framework with heterogeneous firms and endogenous productivity growth in which intangibles reduce marginal costs and raise fixed costs, which gives firms with high-intangible adoption a competitive advantage. This advantage deters other firms from entering new markets and lowers the overall rate of creative destruction. Economic activity reallocates disproportionately towards high-intangible firms, which have higher markups and lower labor shares. I structurally estimate the model and show that after initially boosting productivity for 11 years, the rise of intangibles causes a significant decline in productivity growth, consistent with the empirical trends observed since the mid-1990s.
Intangible Investment and the Persistent Effect of Financial Crises on Output
Revise and Resubmit at The Economic Journal. Cambridge INET working paper, September 2016 - Updated January 2018
This paper identifies the mechanism through which financial crises exert long-term negative effects on output. Theory suggests that a shortfall in productivity-enhancing investments temporarily slows technological progress, creating a gap between pre-crisis trend and actual GDP. This hypothesis is tested using a linked lender-borrower dataset on 522 U.S. corporations responsible for 58% of industrial research and development. Exploiting exogenous variation in firm-level exposure to the Global Financial Crisis, I show that tight credit reduced investments in productivity-enhancement, and significantly slowed down output growth between 2010 and 2015. A partial-equilibrium aggregation exercise suggests GDP would be at least 3.2% higher today if productivity-enhancing investments had grown at pre-crisis rates.
Policy Shocks and Wage Rigidities: Empirical Evidence from the Regional Effect of National Shocks
Cambridge INET working paper, April 2017 (with Damjan Pfajfar, Federal Reserve Board). Submitted.
This paper studies the effect of wage rigidities on the transmission of fiscal and monetary policy shocks. We calculate downward wage rigidities across U.S. states using the Current Population Survey. These estimates are used to explain differences in the state-level economic effects of identical national shocks in interest rates and taxes. In line with the role of sticky wages in New Keynesian models, we find that contractionary monetary policy and tax shocks increase unemployment and decrease economic activity in rigid states considerably more than in flexible states. We also find larger and more persistent effects of monetary and tax policy shocks for states where the ratio between minimum and median wage is higher and for states that do not have right-to-work legislation.
Job Market Paper [VoxEU summary]
This paper offers a unified explanation for the slowdown of productivity growth, the decline in business dynamism and the rise of market power. I claim that the increasing use of intangible inputs – such as software – explains these trends because it causes a shift from variable costs towards fixed costs, which changes the way that firms produce and compete. Using data on the universe of French firms and U.S. publicly listed firms, I first show that the ratio of fixed over total costs rises when firms invest in intangibles. I then develop a quantitative framework with heterogeneous firms and endogenous productivity growth in which intangibles reduce marginal costs and raise fixed costs, which gives firms with high-intangible adoption a competitive advantage. This advantage deters other firms from entering new markets and lowers the overall rate of creative destruction. Economic activity reallocates disproportionately towards high-intangible firms, which have higher markups and lower labor shares. I structurally estimate the model and show that after initially boosting productivity for 11 years, the rise of intangibles causes a significant decline in productivity growth, consistent with the empirical trends observed since the mid-1990s.
- Coverage: ECB Vice-President's Speech, Financieel Dagblad
- Awards: Best Paper at OECD/EC innovation conference Concord 2019
Intangible Investment and the Persistent Effect of Financial Crises on Output
Revise and Resubmit at The Economic Journal. Cambridge INET working paper, September 2016 - Updated January 2018
This paper identifies the mechanism through which financial crises exert long-term negative effects on output. Theory suggests that a shortfall in productivity-enhancing investments temporarily slows technological progress, creating a gap between pre-crisis trend and actual GDP. This hypothesis is tested using a linked lender-borrower dataset on 522 U.S. corporations responsible for 58% of industrial research and development. Exploiting exogenous variation in firm-level exposure to the Global Financial Crisis, I show that tight credit reduced investments in productivity-enhancement, and significantly slowed down output growth between 2010 and 2015. A partial-equilibrium aggregation exercise suggests GDP would be at least 3.2% higher today if productivity-enhancing investments had grown at pre-crisis rates.
- Coverage: Mejudice, The Guardian, VoxEU, Wall Street Journal, Financial Times, ECB Vice-President's Remarks
- Presentations: U. of Cambridge; CPB Netherlands; Tilburg U.; De Nederlandsche Bank; U. of Oxford, Federal Reserve Board; 7th CESIfo Conference on Survey Data and Macroeconomics; Joint CEPR, Bank of England, CFM, BHC Workshop on Finance, Investment and Productivity; Royal Economy Society 2017; BGSE Summer Forum: Firms in the Global Economy; ECB Forum on Central Banking (poster); 5th ECB/CBRT Joint Conference
- Awards: CERF Cambridge Best Student Finance Paper (2018), shortlisted for ECB's Young Economist Award (2017)
Policy Shocks and Wage Rigidities: Empirical Evidence from the Regional Effect of National Shocks
Cambridge INET working paper, April 2017 (with Damjan Pfajfar, Federal Reserve Board). Submitted.
This paper studies the effect of wage rigidities on the transmission of fiscal and monetary policy shocks. We calculate downward wage rigidities across U.S. states using the Current Population Survey. These estimates are used to explain differences in the state-level economic effects of identical national shocks in interest rates and taxes. In line with the role of sticky wages in New Keynesian models, we find that contractionary monetary policy and tax shocks increase unemployment and decrease economic activity in rigid states considerably more than in flexible states. We also find larger and more persistent effects of monetary and tax policy shocks for states where the ratio between minimum and median wage is higher and for states that do not have right-to-work legislation.
Media
De Ridder, Maarten (2019): Untouchable Firms: Market Power, Business Dynamism, and Productivity Growth in the Intangible Economy, VoxEU, 2-7-2019
De Ridder, Maarten & Euwals, Rob (2017): De Economische Effecten van het Algemeen Verbindend Verklaren, ESB, 29-9-2017
De Ridder, Maarten & Teulings, Coen (2017): Endogenous Growth and the Lack of Recovery from the Global Crisis, VoxEU, 13-7-2017
De Ridder, Maarten & Euwals, Rob (2017): De Economische Effecten van het Algemeen Verbindend Verklaren, ESB, 29-9-2017
De Ridder, Maarten & Teulings, Coen (2017): Endogenous Growth and the Lack of Recovery from the Global Crisis, VoxEU, 13-7-2017