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Investment and employment by manufacturing plants

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Author Info

  • Geoffrey M. B. Tootell
  • Richard W. Kopcke
  • Robert K. Triest

Abstract

The preceding article analyzed the determinants of investment at the macroeconomic level. In general, analysis of investment at this degree of aggregation implies that all firms in the economy react similarly to the same macro-level variables. Yet, examining macro data may obscure a great deal of variation in the forces that affect different firms, thus making quantification of the impact of these forces difficult. Since different types of firms face an array of different constraints, the authors analyze employment and investment at manufacturing plants at a finer level of distinction than was used in the previous study. ; The article examines some simple investment and employment equations at a more disaggregated level and compares them to an aggregate equation. Using micro data allows the incorporation of regional and industry-level data that appear to be quite important in the employment and investment decisions of these plants. Sorting the manufacturing data into four different groups allows the exploration of other important issues that cannot be examined using macro data. The findings are somewhat mixed. For many variables, examining broad aggregates does not affect the estimation of the relationship. However, regional effects do explain much of the difference in performance of firms, as regional income and relative wages determine investment and employment across regions. Also, different types of firms tend to react differently to several variables, perhaps the most interesting of which is bank lending.

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Bibliographic Info

Article provided by Federal Reserve Bank of Boston in its journal New England Economic Review.

Volume (Year): (2001)
Issue (Month): ()
Pages: 41-58

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Handle: RePEc:fip:fedbne:y:2001:p:41-58:n:2

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Keywords: Employment (Economic theory) ; Investments;

References

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  1. Mark Doms & Timothy Dunne, 1994. "Capital Adjustment Patterns in Manufacturing Plants," Working Papers 94-11, Center for Economic Studies, U.S. Census Bureau.
  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. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-39, May.
  4. Richard W. Kopcke & with Mark M. Howrey, 1994. "A panel study of investment: sales, cash flow, the cost of capital, and leverage," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 9-30.
  5. Ramey, Valerie A, 1989. "Inventories as Factors of Production and Economic Fluctuations," American Economic Review, American Economic Association, vol. 79(3), pages 338-54, June.
  6. Gertler, Mark & Gilchrist, Simon, 1994. "Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 309-40, May.
  7. Alan S. Blinder & Louis J. Maccini, 1991. "Taking Stock: A Critical Assessment of Recent Research on Inventories," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 73-96, Winter.
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