The empirical identification of non-linearities in investment relies on how investment is assumed to be separated into various regimes. Using German establishment-level panel data, we estimate a two-regime model of replacement and expansion investment which allows us to observe regime separation, an aspect of the data that is typically absent from previous empirical studies. Our results indicate that firms tend to spread the expansion of capital stock over a period of years rather than concentrating investment in a single year. Moreover, there is evidence that investment is more sensitive to fundamentals in the high regime, where establishments both replace and expand capital stock, than in the low regime, where they only invest in replacement. Finally, correcting for endogenous sample selection indicates that this source of bias does not affect the coefficient estimates significantly.
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number
1132.
References listed on IDEAS 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.:
Ricardo J. Caballero, 1997.
"Aggregate Investment,"
NBER Working Papers
6264, National Bureau of Economic Research, Inc.
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