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Entry, Exit, Embodied Technology, and Business Cycles

  • Jeffrey R. Campbell

This paper studies the entry and exit of U.S. manufacturing plants over the business cycle and compares the results with those from a vintage capital model augmented to reproduce observed features of the plant life cycle. Looking at the entry and exit of plants provides new evidence supporting the hypothesis that shocks to embodied technological change are a significant source of economic fluctuations. In the U.S. economy, the entry rate covaries positively with output and total factor productivity growth, and the exit rate leads all three of these. A vintage capital model in which all technological progress is embodied in new plants reproduces these patterns. In the model economy, a persistent improvement to embodied technology induces obsolete plants to cease production, causing exit to rise. Later, as entering plants embodying the new technology become operational, both output and productivity increase.

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File URL: http://www.nber.org/papers/w5955.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5955.

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Date of creation: Mar 1997
Date of revision:
Publication status: published as Review of Economic Dynamics, Vol. 1, Issue 2 (April 1998): 371-408.
Handle: RePEc:nbr:nberwo:5955
Note: EFG
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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