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The Life Cycles of Industrial Plants

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  • Seong-Hoon Lee
  • Michael Gort
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    Abstract

    The paper presents a dynamic programming model with multiple classes of capital goods to explain capital expenditures on existing plants over their lives. The empirical specification shows that the path of capital expenditures is explained by (a) complementarities between old and new capital goods, (b) the age of plants, (c) an index that captures the rate of technical change and (d) the labor intensiveness of a plant when it is newly born. The model is tested with Census data for roughly 6,000 manufacturing plants that were born after 1972.

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    File URL: ftp://ftp2.census.gov/ces/wp/2001/CES-WP-01-10.pdf
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    Bibliographic Info

    Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 01-10.

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    Date of creation: Oct 2001
    Date of revision:
    Handle: RePEc:cen:wpaper:01-10

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    Related research

    Keywords: CES; economic; research; micro; data; microdata; chief; economist;

    References

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    1. Pindyck, Robert, 1989. "Irreversibility, uncertainty, and investment," Policy Research Working Paper Series 294, The World Bank.
    2. Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75, pages 321.
    3. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January.
    4. Feldstein, Martin S & Rothschild, Michael, 1974. "Towards an Economic Theory of Replacement Investment," Econometrica, Econometric Society, vol. 42(3), pages 393-423, May.
    5. Mark Doms & Timothy Dunne, 1994. "Capital Adjustment Patterns in Manufacturing Plants," Working Papers 94-11, Center for Economic Studies, U.S. Census Bureau.
    6. Bertola, G. & Caballero, R.J., 1990. "Kinked Adjustment Costs And Aggregate Dynamics," Discussion Papers 1990_20, Columbia University, Department of Economics.
    7. Rothschild, Michael, 1971. "On the Cost of Adjustment," The Quarterly Journal of Economics, MIT Press, vol. 85(4), pages 605-22, November.
    8. repec:fth:coluec:465 is not listed on IDEAS
    9. Dmitriy Stolyarov & Boyan Jovanovic, 2000. "Optimal Adoption of Complementary Technologies," American Economic Review, American Economic Association, vol. 90(1), pages 15-29, March.
    10. Russell Cooper & John Haltiwanger & Laura Power, 1995. "Machine Replacement and the Business Cycle: Lumps and Bumps," NBER Working Papers 5260, National Bureau of Economic Research, Inc.
    11. Boddy, Raford & Gort, Michael, 1971. "The Substitution of Capital for Capital," The Review of Economics and Statistics, MIT Press, vol. 53(2), pages 179-88, May.
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    Cited by:
    1. Michael Gort & J. Bradford Jensen & Seong-Hoon Lee, 2002. "The Survival of Industrial Plants," Working Papers 02-25, Center for Economic Studies, U.S. Census Bureau.
    2. Michael Gort & Seong-Hoon Lee, 2003. "Managerial Efficiency, Organizational Capital and Productivity," Working Papers 03-08, Center for Economic Studies, U.S. Census Bureau.

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