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Capital Adjustment Patterns In Swedish Manufacturing Firms: What Model Do They Suggest?

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  • Mikael Carlsson
  • Stefan Laséen

Abstract

We study the capital adjustment process in Swedish manufacturing Firms and relate the findings to standard models of capital adjustment. We have three findings. ("i") The capital accumulation process is highly volatile and non-persistent. ("ii") An "S", "s" model fits the data well in some, but not all, dimensions. Also, a model with irreversible capital goes a long way in matching the data. In fact, we argue that it is much more likely that the data reflect irreversibility than fix adjustment costs. ("iii") The estimated adjustment function implies that aggregate investment is relatively unresponsive in deep recessions as compared to normal times. Copyright 2005 Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 115 (2005)
Issue (Month): 506 (October)
Pages: 969-986

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Handle: RePEc:ecj:econjl:v:115:y:2005:i:506:p:969-986

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  1. Hamermesh, Daniel S & Pfann, Gerard Antonie, 1996. "Adjustment Costs in Factor Demand," CEPR Discussion Papers 1371, C.E.P.R. Discussion Papers.
  2. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, December.
  3. 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(2), pages 1-54.
  4. Cabalero, R.J., 1997. "Aggregaete Investment," Working papers 97-20, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Bertola, Guiseppe & Caballero, Ricardo J, 1994. "Irreversibility and Aggregate Investment," Review of Economic Studies, Wiley Blackwell, vol. 61(2), pages 223-46, April.
  6. Mark Doms & Timothy Dunne, 1994. "Capital Adjustment Patterns in Manufacturing Plants," Working Papers 94-11, Center for Economic Studies, U.S. Census Bureau.
  7. Dufwenberg, Martin & Koskenkyla, Heikki & Sodersten, Jan, 1994. " Manufacturing Investment and Taxation in the Nordic Countries," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(3), pages 443-61.
  8. Øivind Anti Nilsen & Fabio Schiantarelli, 2003. "Zeros and Lumps in Investment: Empirical Evidence on Irreversibilities and Nonconvexities," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1021-1037, November.
  9. Caballero, Ricardo J, 1994. "Small Sample Bias and Adjustment Costs," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 52-58, February.
  10. Prakash Loungani & Bharat Trehan, 1997. "Job creation and destruction," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue may2.
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Cited by:
  1. M. Grazzi & N. Jacoby & T. Treibich, 2013. "Dynamics of Investment and Firm Performance: Comparative evidence from manufacturing industries," Working Papers wp869, Dipartimento Scienze Economiche, Universita' di Bologna.
  2. Verona, Fabio, 2013. "Investment dynamics with information costs," Research Discussion Papers 18/2013, Bank of Finland.
  3. Alessandra Del Boca & Marzio Galeotti & Paola Rota, 2002. "Non-convexities in the adjustment of different capital inputs: a firm-level investigation," Working Papers 0203, University of Bergamo, Department of Economics.
  4. Øivind A. Nilsen & Arvid Raknerud & Marina Rybalka & Terje Skjerpen, 2009. "Lumpy investments, factor adjustments, and labour productivity," Oxford Economic Papers, Oxford University Press, vol. 61(1), pages 104-127, January.
  5. Christian Bayer, 2004. "On the Interaction of Financial Frictions and Fixed Capital Adjustment Costs: Evidence from a Panel of German Firms," Macroeconomics 0410006, EconWPA.
  6. Carlsson, Mikael, 2004. "Investment and Uncertainty: A Theory-Based Empirical Approach," Working Paper Series 2004:17, Uppsala University, Department of Economics.
  7. Tomat, Gian Maria, 2008. "Modeling the Effects of Financial Constraints on Firm's Investment," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 2(9), pages 1-26.
  8. Sandra Martina Leitner, 2008. "Interrelatedness, Dynamic Factor Adjustment Patterns and Firm Heterogeneity in Austrian Manufacturing," Economics working papers 2008-03, Department of Economics, Johannes Kepler University Linz, Austria.
  9. Øivind A. Nilsen & Arvid Raknerud & Marina Rybalka & Terje Skjerpen, 2005. "Lumpy Investments, Factor Adjustments and Productivity," Discussion Papers 441, Research Department of Statistics Norway.
  10. Lundin, Magnus & Gottfries, Nils & Lindström, Tomas, 2004. "Price and Investment Dynamics: An Empirical Analysis of Plant Level Data," Working Paper Series 2004:7, Uppsala University, Department of Economics.

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