Displaced Capital: A Study of Aerospace Plant Closings

Using equipment-level data from aerospace plants that closed during the 1990s, this paper studies the process of moving installed physical capital to a new use. The analysis yields three results that suggest significant sectoral specificity of physical capital and substantial costs of redeploying the capital. First, other aerospace companies are overrepresented among buyers of the used capital relative to their representation in the market for new investment goods. Second, even after age-related depreciation is taken into account, capital sells for a substantial discount relative to replacement cost; the more specialized the type of capital, the greater the discount. Yet, capital sold to other aerospace firms fetches a higher price than capital sold to industry outsiders. Finally, the process of winding down operations and selling the equipment takes several years.