Firm Exit, Vintage Effect and the Business Cycle in Norway
AbstractIn spite of the large and growing literature on producer heterogeneity and firm exit behavior, little attention has been paid to the vintage capital theory of firm exits as an alternative hypothesis to learning/selection. Interpreted at the firm level the vintage capital theory predicts that exit rates increase in the age of capital. The present paper uses a panel of Norwegian manufacturing plants and constructs an index of capital age in addition to the age of the establishment in order to disentangle the effects of selection/learning and vintage capital on exit rates. The empirical results suggest a U-shaped exit function in the age of the plant implying both a learning effect and a vintage capital effect. The vintage capital effect is present under different assumption concerning reinvestments and controlling for unobserved heterogeneity. The exit rates are found to depend on the business cycle in that exits increase in a severe downturn. Our results also support the assertion that recessions are periods of cleansing where old capital equipment is scrapped via exiting plants.
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Bibliographic InfoPaper provided by Norwegian School of Economics and Business Administration- in its series Papers with number 2/99.
Length: 28 pages
Date of creation: 1999
Date of revision:
Contact details of provider:
Postal: NORWEGIAN SCHOOL OF ECONOMICS AND BUSINESS ADMINISTRATION, HELLEVEIEN 30, 5035 BERGEN SANDVIKEN NORWAY.
Phone: 5595 9000
Fax: 5595 9100
Web page: http://www.nhh.no/
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BUSINESS CYCLES ; MANUFACTURES ; MARKET STRUCTURE;
Find related papers by JEL classification:
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
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- Andersson, Fredrik & Vejsiu, Altin, 2001. "Determinants of plant closures in Swedish manufacturing," Working Paper Series 2001:6, IFAU - Institute for Evaluation of Labour Market and Education Policy.
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