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.

I will