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Sequentiality versus Simultaneity: Interrelated Factor Demand

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Author Info

  • Asphjell, Magne Krogstad

    ()
    (Norwegian School of Economics)

  • Letterie, Wilko

    ()
    (Maastricht University)

  • Nilsen, Øivind Anti

    ()
    (Norwegian School of Economics)

  • Pfann, Gerard A.

    ()
    (Maastricht University)

Abstract

A structural model is developed and estimated by a maximum likelihood routine to investigate interrelated factor demand subject to nonconvex adjustment costs. The dataset concerns Norwegian plants operating in manufacturing industries and it covers the period 1993-2005. The estimates indicate that it is advantageous to adjust the stock of labour and capital simultaneously. The cost advantage of simultaneous changes is small for capital but is large for labour. The empirical results suggest that when estimating separate factor demand models the bias of parameter estimates is most severe in case of labour demand.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5359.

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Length: 49 pages
Date of creation: Dec 2010
Date of revision:
Handle: RePEc:iza:izadps:dp5359

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Keywords: nonconvex adjustment costs; interrelation; capital; labour; factor demand;

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References

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  1. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
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  3. Letterie, Wilko A. & Pfann, Gerard A., 2007. "Structural identification of high and low investment regimes," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 797-819, April.
  4. Xiaoqiang Hu & Fabio Schiantarelli, 1998. "Investment And Capital Market Imperfections: A Switching Regression Approach Using U.S. Firm Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 466-479, August.
  5. Abel, Andrew B & Eberly, Janice C, 1994. "A Unified Model of Investment under Uncertainty," American Economic Review, American Economic Association, vol. 84(5), pages 1369-84, December.
  6. Pfann, Gerald A. & Verspagen, Bart, 1989. "The structure of adjustment costs for labour in the Dutch manufacturing sector," Economics Letters, Elsevier, vol. 29(4), pages 365-371.
  7. Plutarchos Sakellaris, 2001. "Patterns of plant adjustment," Finance and Economics Discussion Series 2001-05, Board of Governors of the Federal Reserve System (U.S.).
  8. Nilsen, Øivind Anti & Salvanes, Kjell G. & Schiantarelli, Fabio, 2003. "Employment Changes, the Structure of Adjustment Costs, and Plant Size," Working Papers in Economics 11/03, University of Bergen, Department of Economics.
  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. Simon Gilchrist & Charles Himmelberg, 1998. "Investment, Fundamentals and Finance," NBER Working Papers 6652, National Bureau of Economic Research, Inc.
  11. Abowd, John M. & Kramarz, Francis, 2003. "The costs of hiring and separations," Labour Economics, Elsevier, vol. 10(5), pages 499-530, October.
  12. Russell W. Cooper & John C. Haltiwanger, 2000. "On the Nature of Capital Adjustment Costs," NBER Working Papers 7925, National Bureau of Economic Research, Inc.
  13. Letterie, Wilko A. & Pfann, Gerard A. & Polder, J. Michael, 2004. "Factor adjustment spikes and interrelation: an empirical investigation," Economics Letters, Elsevier, vol. 85(2), pages 145-150, November.
  14. Galeotti, Marzio & Schiantarelli, Fabio, 1991. "Generalized Q Models for Investment," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 383-92, August.
  15. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, 05.
  16. 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.
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Cited by:
  1. Marco Grazzi & Nadia Jacoby & Tania Treibich, 2013. "Dynamics of Investment and Firm Performance: Comparative evidence from manufacturing industries," LEM Papers Series 2013/06, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  2. Yaman, F., 2011. "The costs of adjusting labor: Evidence from temporally disaggregated data," Working Papers 11/10, Department of Economics, City University London.

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