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Capital Adjustment Patterns in Manufacturing Plants

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Author Info
Mark E. Doms (Board of Governors of the Federal Reserve System)
Timothy Dunne (Department of Economics, University of Oklahoma and Office of the Chief Economist, U.S. Census Bureau)

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Abstract

A common result from altering several fundamental assumptions of the neoclassical investment model with convex adjustment costs is that investment may occur in lumpy episodes. This paper takes a step back and asks "How lumpy is investment?" We answer this question by documenting the distributions of investment and capital adjustment for a sample of over 13,700 manufacturing plants drawn from over 300 four-digit industries. We find that many plants do undergo large investment episodes; however, there is tremendous variation across plants in their capital accumulation patterns. This paper explores how the variation in capital accumulation patterns vary by observable plant and firm characteristics, and how large investment episodes at the plant level transmit into fluctuations in aggregate investment. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1006/redy.1998.0011
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Publisher Info
Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 1 (1998)
Issue (Month): 2 (April)
Pages: 409-429
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Handle: RePEc:red:issued:v:1:y:1998:i:2:p:409-429

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Find related papers by JEL classification:
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
L6 - Industrial Organization - - Industry Studies: Manufacturing
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity

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  1. Caballero, Ricardo J & Engel, Eduardo M R A & Haltiwanger, John, 1997. "Aggregate Employment Dynamics: Building from Microeconomic Evidence," American Economic Review, American Economic Association, vol. 87(1), pages 115-37, March. [Downloadable!] (restricted)
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  2. Bertola, Guiseppe & Caballero, Ricardo J, 1994. "Irreversibility and Aggregate Investment," Review of Economic Studies, Blackwell Publishing, vol. 61(2), pages 223-46, April. [Downloadable!] (restricted)
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  3. Caballero, Ricardo J & Engel, Eduardo M R A, 1993. "Microeconomic Adjustment Hazards and Aggregate Dynamics," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 359-83, May. [Downloadable!] (restricted)
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  4. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September. [Downloadable!] (restricted)
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  7. Jeffrey R. Campbell & Jonas D.M. Fisher, 1996. "Aggregate employment fluctuations with microeconomic asymmetries," Discussion Paper / Institute for Empirical Macroeconomics 112, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  8. Cooper, Russell & Haltiwanger, John, 1993. "The Aggregate Implications of Machine Replacement: Theory and Evidence," American Economic Review, American Economic Association, vol. 83(3), pages 360-82, June. [Downloadable!] (restricted)
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  9. Dixit, Avinash, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-32, Winter. [Downloadable!] (restricted)
  10. Bahk, Byong-Hong & Gort, Michael, 1993. "Decomposing Learning by Doing in New Plants," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 561-83, August. [Downloadable!] (restricted)
  11. Bertola, G. & Caballero, R.J., 1990. "Kinked Adjustment Costs And Aggregate Dynamics," Discussion Papers 1990_20, Columbia University, Department of Economics.
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  12. Andrew B. Abel & Olivier J. Blanchard, 1987. "The Present Value of Profits and Cyclical Movements in Investment," NBER Working Papers 1122, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Ricardo J. Caballero, 1997. "Aggregate Investment," NBER Working Papers 6264, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Abel, Andrew B & Eberly, Janice C, 1994. "A Unified Model of Investment under Uncertainty," American Economic Review, American Economic Association, vol. 84(5), pages 1369-84, December. [Downloadable!] (restricted)
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  15. Russell Cooper & John Haltiwanger & Laura Power, 1995. "Machine Replacement and the Business Cycle: Lumps and Bumps," NBER Working Papers 5260, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Ricardo J. Caballero & Eduardo M. R. A. Engel & John C. Haltiwanger, 1995. "Plant-Level Adjustment and Aggregate Investment Dynamics," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995-2), pages 1-54. [Downloadable!]
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