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The Life Cycles of Industrial Plants

  • Seong-Hoon Lee
  • Michael Gort
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    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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    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
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    Handle: RePEc:cen:wpaper:01-10
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    Web page: http://www.census.gov/ces
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    1. John Haltiwanger & Russell Cooper & Laura Power, 1999. "Machine Replacement and the Business Cycle: Lumps and Bumps," American Economic Review, American Economic Association, vol. 89(4), pages 921-946, September.
    2. Robert S. Pindyck, 1990. "Irreversibility, Uncertainty, and Investment," NBER Working Papers 3307, National Bureau of Economic Research, Inc.
    3. Mark Doms & Timothy Dunne, 1994. "Capital Adjustment Patterns in Manufacturing Plants," Working Papers 94-11, Center for Economic Studies, U.S. Census Bureau.
    4. 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.
    5. Jovanovic, Boyan & Stolyarov, Dmitriy, 1997. "Optimal Adoption of Complementary Technologies," Working Papers 97-27, C.V. Starr Center for Applied Economics, New York University.
    6. Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75, pages 321.
    7. Feldstein, Martin S & Rothschild, Michael, 1974. "Towards an Economic Theory of Replacement Investment," Econometrica, Econometric Society, vol. 42(3), pages 393-423, May.
    8. Fumio Hayashi, 1981. "Tobin's Marginal q and Average a : A Neoclassical Interpretation," Discussion Papers 457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    9. Rothschild, Michael, 1971. "On the Cost of Adjustment," The Quarterly Journal of Economics, MIT Press, vol. 85(4), pages 605-22, November.
    10. Giuseppe Bertola & Ricardo J. Caballero, 1990. "Kinked Adjustment Costs and Aggregate Dynamics," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 237-296 National Bureau of Economic Research, Inc.
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