A Model of Costly Capital Reallocation and Aggregate Productivity
AbstractThe author studies the effects of capital reallocation (the flow of productive capital across firms and establishments mainly through changes in ownership) on aggregate labour productivity. Capital reallocation is an important activity in the United States: on average, its total value is 3-4 per cent of U.S. GDP. Firms with lower productivity are more likely to be reallocated to (i.e., bought by) more productive firms. Reallocated establishments experience an increase in productivity. The author develops a dynamic model of capital reallocation and compares its predictions with U.S. data. In the model, limited participation in acquisition markets by heterogeneous firms results in an increase in aggregate productivity. With reasonably chosen parameter values, policy experiments show that the increased reallocation of capital and labour contributed as much as a 17 per cent improvement in aggregate labour productivity in the mid-1980s. When a positive total-factor-productivity shock occurs, in steady state the increase in aggregate productivity arises entirely from this shock, and reallocation is unaffected.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 08-38.
Length: 38 pages
Date of creation: 2008
Date of revision:
Contact details of provider:
Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada
Phone: 613 782-8845
Fax: 613 782-8874
Web page: http://www.bank-banque-canada.ca/
Productivity; Economic models;
Find related papers by JEL classification:
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-10-21 (All new papers)
- NEP-EFF-2008-10-21 (Efficiency & Productivity)
- NEP-MAC-2008-10-21 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Eric J. Bartelsman & Phoebus J. Dhrymes, 1994.
"Productivity dynamics: U.S. manufacturing plants, 1972-1986,"
Finance and Economics Discussion Series
94-1, Board of Governors of the Federal Reserve System (U.S.).
- Bartelsman, E.J. & Dhrymes, P.J., 1991. "Productivity Dynamics: US Manufacturing Plants, 1972-1986," Discussion Papers 1991_50, Columbia University, Department of Economics.
- Phoebus Dhrymes & Eric Bartelsman, 1992. "Productivity Dynamics: U.S. Manufacturing Plants, 1972-1986," Working Papers 92-1, Center for Economic Studies, U.S. Census Bureau.
- Robert E. Hall, 2004. "Measuring Factor Adjustment Costs," The Quarterly Journal of Economics, MIT Press, vol. 119(3), pages 899-927, August.
- Brian Erard & Huntley Schaller, 1994.
"Acquisitions and Investment,"
Carleton Economic Papers
94-01, Carleton University, Department of Economics, revised Aug 2002.
- Russell W. Cooper & John C. Haltiwanger, 2006.
"On the Nature of Capital Adjustment Costs,"
Review of Economic Studies,
Oxford University Press, vol. 73(3), pages 611-633.
- Michael C. Jensen, 1994.
"The Modern Industrial Revolution, Exit, And The Failure Of Internal Control Systems,"
Journal of Applied Corporate Finance,
Morgan Stanley, vol. 6(4), pages 4-23.
- Jensen, Michael C, 1993. " The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Finance, American Finance Association, vol. 48(3), pages 831-80, July.
- Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58.
- Hopenhayn, Hugo A & Prescott, Edward C, 1992. "Stochastic Monotonicity and Stationary Distributions for Dynamic Economies," Econometrica, Econometric Society, vol. 60(6), pages 1387-406, November.
- Andrea L. Eisfeldt, 2004. "Endogenous Liquidity in Asset Markets," Journal of Finance, American Finance Association, vol. 59(1), pages 1-30, 02.
- Steven Davis & John Haltiwanger & Ron Jarmin & Josh Lerner & Javier Miranda, 2008.
"Private Equity and Employment,"
08-07r, Center for Economic Studies, U.S. Census Bureau, revised Oct 2011.
- Vojislav Maksimovic, 2001.
"The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and Are There Efficiency Gains?,"
Journal of Finance,
American Finance Association, vol. 56(6), pages 2019-2065, December.
- Gordon M Phillips & Vojislav Maksimovic, 1999. "The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and are there Efficiency Gains?," Working Papers 99-12, Center for Economic Studies, U.S. Census Bureau.
- Rachel Griffith & Jonathan Haskel & Andy Neely, 2006. "Why is Productivity so Dispersed?," Oxford Review of Economic Policy, Oxford University Press, vol. 22(4), pages 513-525, Winter.
- Hansen, Gary D., 1985.
"Indivisible labor and the business cycle,"
Journal of Monetary Economics,
Elsevier, vol. 16(3), pages 309-327, November.
- Donald S. Siegel & Kenneth L. Simons & Tomas Lindstrom, 2005. "Ownership Change, Productivity, and Human Capital: New Evidence from Matched Employer-Employee Data in Swedish Manufacturing," Rensselaer Working Papers in Economics 0502, Rensselaer Polytechnic Institute, Department of Economics.
- Frank R. Lichtenberg & Donald Siegel, 1989. "The Effect Of Control Changes On The Productivity Of U.S. Manufacturing Plants," Journal of Applied Corporate Finance, Morgan Stanley, vol. 2(2), pages 60-67.
- 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.
- Mark Doms & Eric J. Bartelsman, 2000.
"Understanding Productivity: Lessons from Longitudinal Microdata,"
Journal of Economic Literature,
American Economic Association, vol. 38(3), pages 569-594, September.
- Eric J. Bartelsman & Mark Doms, 2000. "Understanding productivity: lessons from longitudinal microdata," Finance and Economics Discussion Series 2000-19, Board of Governors of the Federal Reserve System (U.S.).
- Christopher L. House & John V. Leahy, 2004.
"An sS Model with Adverse Selection,"
Journal of Political Economy,
University of Chicago Press, vol. 112(3), pages 581-614, June.
- Boyan Jovanovic & Peter L. Rousseau, 2002.
"The Q-Theory of Mergers,"
NBER Working Papers
8740, National Bureau of Economic Research, Inc.
- Eisfeldt, Andrea L. & Rampini, Adriano A., 2006. "Capital reallocation and liquidity," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 369-399, April.
- Bengt Holmstrom & Steven N. Kaplan, 2001. "Corporate Governance and Merger Activity in the United States: Making Sense of the 1980s and 1990s," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 121-144, Spring.
- Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.