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Capital Adjustment Patterns in Swedish Manufacturing Firms: What Model do they Suggest?

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Author Info

  • Carlsson, Mikael

    (Department of Economics)

  • Laséen, Stefan

    ()
    (Department of Economics)

Abstract

In this paper we study the capital adjustment process in Swedish manufacturing firms and relate the empirical findings to standard models of firm behavior in the presence of impediments to capital adjustments. We find that (i) a model with irreversible capital goes a very long way in capturing the salient features of firm-level capital adjustment behavior. To see this, an integrated approach is necessary since different alternative models do well in certain comparative dimensions but not in others. (ii) The partial adjustment model generally fails to explain capital adjustment patterns. (iii) The capital accumulation process is a highly volatile and non-persistent process on the firm-level. (iv) Firms adjustment behavior is asymmetric in that they are more likely to tolerate excess capital than shortages of capital, and finally, (v) the estimated adjustment function implies that aggregate investment is relatively unresponsive to aggregate shocks in deep recessions as compared to the responsiveness in normal times.

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Bibliographic Info

Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2001:15.

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Length: 39 pages
Date of creation: 16 Aug 2001
Date of revision:
Publication status: Forthcoming in Economic Journal.
Handle: RePEc:hhs:uunewp:2001_015

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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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Web page: http://www.nek.uu.se/
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Keywords: Investment; Irreversibilities; Lumpiness; Manufacturing;

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References

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  1. Caballero, Ricardo J., 1999. "Aggregate investment," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 12, pages 813-862 Elsevier.
  2. 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.
  3. 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.
  4. 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, December.
  5. Prakash Loungani & Bharat Trehan, 1997. "Job creation and destruction," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue may2.
  6. Bertola, Guiseppe & Caballero, Ricardo J, 1994. "Irreversibility and Aggregate Investment," Review of Economic Studies, Wiley Blackwell, vol. 61(2), pages 223-46, April.
  7. Hamermesh, Daniel S & Pfann, Gerard Antonie, 1996. "Adjustment Costs in Factor Demand," CEPR Discussion Papers 1371, C.E.P.R. Discussion Papers.
  8. Dufwenberg, Martin & Koskenkyla, Heikki & Sodersten, Jan, 1994. " Manufacturing Investment and Taxation in the Nordic Countries," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(3), pages 443-61.
  9. Oivind Anti Nilsen & Fabio Schiantarelli, 1996. "Zeroes and Lumps in Investment: Empirical Evidence on Irreversibilities and Non-Convexities," Boston College Working Papers in Economics 337., Boston College Department of Economics, revised 01 Nov 2000.
  10. Caballero, Ricardo J, 1994. "Small Sample Bias and Adjustment Costs," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 52-58, February.
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Cited by:
  1. Øivind A. Nilsen & Arvid Raknerud & Marina Rybalka & Terje Skjerpen, 2005. "Lumpy Investments, Factor Adjustments and Productivity," Discussion Papers 441, Research Department of Statistics Norway.
  2. Bayer, Christian, 2008. "On the interaction of financial frictions and fixed capital adjustment costs: Evidence from a panel of German firms," Journal of Economic Dynamics and Control, Elsevier, vol. 32(11), pages 3538-3559, November.
  3. Del Boca, Alessandra & Galeotti, Marzio & Rota, Paola, 2008. "Non-convexities in the adjustment of different capital inputs: A firm-level investigation," European Economic Review, Elsevier, vol. 52(2), pages 315-337, February.
  4. Carlsson, Mikael, 2004. "Investment and Uncertainty: A Theory-Based Empirical Approach," Working Paper Series, Uppsala University, Department of Economics 2004:17, Uppsala University, Department of Economics.
  5. Sandra Martina Leitner, 2008. "Interrelatedness, Dynamic Factor Adjustment Patterns and Firm Heterogeneity in Austrian Manufacturing," Economics working papers 2008-03, Department of Economics, Johannes Kepler University Linz, Austria.
  6. M. Grazzi & N. Jacoby & T. Treibich, 2013. "Dynamics of Investment and Firm Performance: Comparative evidence from manufacturing industries," Working Papers wp869, Dipartimento Scienze Economiche, Universita' di Bologna.
  7. Øivind A. Nilsen & Arvid Raknerud & Marina Rybalka & Terje Skjerpen, 2009. "Lumpy investments, factor adjustments, and labour productivity," Oxford Economic Papers, Oxford University Press, vol. 61(1), pages 104-127, January.
  8. Lundin, Magnus & Gottfries, Nils & Lindström, Tomas, 2004. "Price and Investment Dynamics: An Empirical Analysis of Plant Level Data," Working Paper Series, Uppsala University, Department of Economics 2004:7, Uppsala University, Department of Economics.
  9. Tomat, Gian Maria, 2008. "Modeling the Effects of Financial Constraints on Firm's Investment," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 2(9), pages 1-26.
  10. Verona, Fabio, 2013. "Investment dynamics with information costs," Research Discussion Papers 18/2013, Bank of Finland.

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