New Plants as Natural Experiments in Economic Adjustment: Adjustment Costs, Learning-by-Doing and Lumpy Investment
38 Pages Posted: 19 Jan 2000
Date Written: November 1999
A large sample of new plants is studied to reveal detailed adjustment behavior for capital, labor and productivity. Once production has begun, capital adjusts almost as quickly as labor. Overall, capital adjustment is lumpy while labor follows a learning-by-doing model rather than a convex adjustment cost model. Plants are quite heterogeneous, however: convex adjustment costs appear important at small plants, but large plants exhibit lumpy investment and substantial investment in learning-by-doing. A positive association between plant productivity growth and wages (and also the change in wages) corroborates the importance of learning-by-doing. Also, learning-by-doing appears to influence the behavior of large plants subsequent to startup.
JEL Classification: D24, D83, J24
Suggested Citation: Suggested Citation