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Capital Utilisation and Retirement

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  • Bonleu, A.
  • Cette, G.
  • Horny, G.

Abstract

This empirical analysis aims at assessing the effect of the economic climate and the intensity of capital utilisation on companies’ capital retirement behaviour. It is conducted using individual company data, as well as original data on the degree of utilisation of production factors. The sample includes 6,998 observations over the period 1996-2008. This database is, to our knowledge, unique for the empirical analysis of the intensity of capital utilisation on firms’ capital retirement behaviour. We adjust for endogeneity biases by means of instrumental variables. The main results obtained from the estimation of capital retirement models may be summarised as follows: i) The retirement rate decreases with the variations in cyclical pressures measured by the changes in output and the workweek of capital; this relation corresponds to a countercyclical decelerator effect on capital retirement; ii) The capital retirement rate increases with the structural intensity of capital utilisation; this effect, which corresponds to a wear and tear one, is nevertheless small compared to the decelerator one; iii) The profit rate does not have a significant impact on the retirement rate. Compared with the existing literature, here mainly Mairesse and Dormont (1985), the contribution of these results is to show, through the use of unique survey data, that the effect of the intensity of capital utilisation on capital retirement is structurally positive, via a wear and tear effect, and cyclically negative, via a decelerator effect which completes that already taken into account via the effect of changes in value added.

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Bibliographic Info

Paper provided by Banque de France in its series Working papers with number 343.

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Length: 23 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:bfr:banfra:343

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Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS
Web page: http://www.banque-france.fr/
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Keywords: Capital; Capital measure; Capital retirement; Capital utilisation.;

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  1. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
  2. Jeffrey M. Wooldridge, 2001. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262232197, December.
  3. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
  4. Jinyong Hahn & Jerry Hausman & Guido Kuersteiner, 2004. "Estimation with weak instruments: Accuracy of higher-order bias and MSE approximations," Econometrics Journal, Royal Economic Society, vol. 7(1), pages 272-306, 06.
  5. Bitros, George C. & Hritonenko, Natali & Yatsenko, Yuri, 2007. "Investment, replacement and scrapping in a vintage capital model with embodied technological change," MPRA Paper 3619, University Library of Munich, Germany.
  6. Mairesse, Jacques & Dormont, Brigitte, 1985. "Labor and investment demand at the firm level : A comparison of French, German and U.S. manufacturing, 1970-79," European Economic Review, Elsevier, vol. 28(1-2), pages 201-231.
  7. Marcelo Veracierto, 1998. "Plant level irreversible investment and equilibrium business cycles," Working Paper Series WP-98-1, Federal Reserve Bank of Chicago.
  8. Jorgenson, Dale W, 1996. "Empirical Studies of Depreciation," Economic Inquiry, Western Economic Association International, vol. 34(1), pages 24-42, January.
  9. Bond, Stephen & Van Reenen, John, 2007. "Microeconometric Models of Investment and Employment," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 65 Elsevier.
  10. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
  11. Cragg, John G. & Donald, Stephen G., 1993. "Testing Identifiability and Specification in Instrumental Variable Models," Econometric Theory, Cambridge University Press, vol. 9(02), pages 222-240, April.
  12. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
  13. Alfonso Flores-Lagunes, 2007. "Finite sample evidence of IV estimators under weak instruments," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(3), pages 677-694.
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Cited by:
  1. Antonio Garofalo & R. Plasman & Concetto Paolo Vinci, 2000. "Reducing Working Time In An Efficiency Wage Economy With A Dual Labour Market," Working Papers 7_2000, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
  2. Antonio Garofalo & Concetto Paolo Vinci, 2000. "Employment, Capital Operating Time And Efficiency Wages Hypothesis: Is There Any Room For Worksharing?," Working Papers 4_2000, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
  3. Michalis Nikiforos, 2012. "On the Utilization Controversy: A Theoretical and Empirical Discussion of the Kaleckian Model of Growth and Distribution," Economics Working Paper Archive wp_739, Levy Economics Institute.

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