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Technology Locks, Creative Destruction, and Non-Convergence in Productivity Levels

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  • Douglas Dwyer

    (William M. Mercer, Inc.)

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    Abstract

    Plant-level data from U.S. textile industries indicate (1) significant cross-sectional dispersion in plant-level productivity within narrowly defined industries, (2) that highly productive plants grow faster and are less likely to exit, (3) dispersion in productivity is larger in industries with more rapid productivity growth, (4) older plants are bigger, and (5) plant births and closures are common to all four-digit textile industries. This paper presents an extended vintage model to explain these facts. The model assumes that a plant incurs a fixed cost of adopting the current best practice and convex costs of adjusting its capital stock. The model provides alternative explanations for the phenomena of investment spikes and S-shaped diffusion. Finally, the model interprets the fact that entry and exit are positively correlated across industries as evidence that variation in plant turnover across industries is driven by variation in technology rather than variation in demand growth. (Copyright: Elsevier)

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    File URL: http://dx.doi.org/10.1006/redy.1998.0010
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    Bibliographic 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: 430-473

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    Handle: RePEc:red:issued:v:1:y:1998:i:2:p:430-473

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    References

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    1. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," Harvard Institute of Economic Research Working Papers 1719, Harvard - Institute of Economic Research.
    2. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
    3. 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.
    4. Ricardo J. Caballero, 1997. "Aggregate Investment," NBER Working Papers 6264, National Bureau of Economic Research, Inc.
    5. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1988. "Patterns of Firm Entry and Exit in U.S. Manufacturing Industries," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 495-515, Winter.
    6. 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.
    7. Atkenson, Andrew & Khan, Aubhik & Ohanian, Lee, 1996. "Are data on industry evolution and gross job turnover relevant for macroeconomics?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 44(1), pages 215-239, June.
    8. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc.
    9. Douglas W Dwyer, 1995. "Whittling Away At Productivity Dispersion," Working Papers 95-5, Center for Economic Studies, U.S. Census Bureau.
    10. Ricardo J. Caballero & John V. Leahy, 1996. "Fixed Costs: The Demise of Marginal q," Harvard Institute of Economic Research Working Papers 1765, Harvard - Institute of Economic Research.
    11. Phoebus J Dhrymes, 1991. "The Structure Of Production Technology Productivity And Aggregation Effects," Working Papers 91-5, Center for Economic Studies, U.S. Census Bureau.
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    13. Mark E. Doms & Timothy Dunne, 1998. "Capital Adjustment Patterns in Manufacturing Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 409-429, April.
    14. John Haltiwanger & Russell Cooper & Laura Power, 1999. "Machine Replacement and the Business Cycle: Lumps and Bumps," American Economic Review, American Economic Association, vol. 89(4), pages 921-946, September.
    15. 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.
    16. Cooley, Thomas F. & Greenwood, Jeremy & Yorukoglu, Mehmet, 1997. "The replacement problem," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 457-499, December.
    17. Douglas W Dwyer, 1997. "Productivity Races II: The Issue of Capital Measurement," Working Papers 97-3, Center for Economic Studies, U.S. Census Bureau.
    18. Ricardo J. Caballero & Eduardo M.R.A. Engel & John Haltiwanger, 1995. "Aggregate Employment Dynamics: Building From Microeconomic Evidence," NBER Working Papers 5042, National Bureau of Economic Research, Inc.
    19. Ariel Pakes & Richard Ericson, 1989. "Empirical Implications of Alternative Models of Firm Dynamics," NBER Working Papers 2893, National Bureau of Economic Research, Inc.
    20. Chari, V V & Hopenhayn, Hugo, 1991. "Vintage Human Capital, Growth, and the Diffusion of New Technology," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1142-65, December.
    21. Mehmet Yorukoglu, 1998. "The Information Technology Productivity Paradox," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 551-592, April.
    22. Shrestha, Rajendra B & Gopalakrishnan, Chennat, 1993. "Adoption and Diffusion of Drip Irrigation Technology: An Econometric Analysis," Economic Development and Cultural Change, University of Chicago Press, vol. 41(2), pages 407-18, January.
    23. Dhymes, P., 1991. "The Structure of production Technology: Productivity and Aggregation Effects," Discussion Papers 1991_07, Columbia University, Department of Economics.
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    Cited by:
    1. Douglas W Dwyer, 2001. "Plant-Level Productivity and the Market Value of a Firm," Working Papers 01-03, Center for Economic Studies, U.S. Census Bureau.
    2. Lucia Foster & John Haltiwanger & C.J. Krizan, 2002. "The Link Between Aggregate and Micro Productivity Growth: Evidence from Retail Trade," NBER Working Papers 9120, National Bureau of Economic Research, Inc.
    3. Jeremy Greenwood & Boyan Jovanovic, 1998. "Accounting for Growth," NBER Working Papers 6647, National Bureau of Economic Research, Inc.
      • Jeremy Greenwood & Boyan Jovanovic, 2001. "Accounting for Growth," NBER Chapters, in: New Developments in Productivity Analysis, pages 179-224 National Bureau of Economic Research, Inc.
    4. Maliranta, Mika, 2005. "Foreign-owned Firms and Productivity-enhancing Restructuring in Finnish Manufacturing Industries," Discussion Papers 965, The Research Institute of the Finnish Economy.
    5. Boyan Jovanovic & Chung-Yi Tse, 2006. "Creative Destruction in Industries," NBER Working Papers 12520, National Bureau of Economic Research, Inc.

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