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Linking Investment Spikes and Productivity Growth: U.S. Food Manufacturing Industry

  • Pinar Celikkol Geylani
  • Spiro E. Stefanou

We investigate the relationship between productivity growth and investment spikes using Census Bureau's plant-level data set for the U.S. food manufacturing industry. We find that productivity growth increases after investment spikes suggesting an efficiency gain or plants' learning effect. However, efficiency and the learning period associated with investment spikes differ among plants' productivity quartile ranks implying the differences in the plants' investment types such as expansionary, replacement or retooling. We find evidence of both convex and non-convex types of adjustment costs where lumpy plant-level investments suggest the possibility of non-convex adjustment costs and hazard estimation results suggest the possibility of convex adjustment costs. The downward sloping hazard can be due to the unobserved heterogeneity across plants such as plants' idiosyncratic obsolescence caused by different R&D capabilities and implies the existence of convex adjustment costs. Food plants frequently invest during their first few years of operation and high productivity plants postpone investing due to high fixed costs.

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File URL: ftp://ftp2.census.gov/ces/wp/2008/CES-WP-08-36.pdf
File Function: First version, 2008
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Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 08-36.

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Length: 52 pages
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:cen:wpaper:08-36
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