Plant Exit, Vintage Capital and the Business Cycle

22 Pages Posted: 23 Jul 2004

See all articles by Kjell G. Salvanes

Kjell G. Salvanes

Norwegian School of Economics (NHH) - Department of Economics; IZA Institute of Labor Economics

Ragnar Tveteras

Stavanger University College

Abstract

Despite the large literature on plant exit behavior, little attention has been paid to the vintage capital theory as an alternative hypothesis to learning. Learning models predict that exit rates decrease with plant age and the vintage capital theory predicts that exit rates increase with the age of capital. We use a panel of Norwegian manufacturing plants and construct an index of capital age to distinguish between the effects on exit rates. The empirical results imply that there is both a learning effect and a vintage capital effect. We also find that exit rates depend on the business cycle, and increase in severe downturns.

Suggested Citation

Salvanes, Kjell G. and Tveteras, Ragnar, Plant Exit, Vintage Capital and the Business Cycle. Journal of Industrial Economics, Vol. 52, No. 2, pp. 255-276, June 2004. Available at SSRN: https://ssrn.com/abstract=565091

Kjell G. Salvanes (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway
+47 5 595 9315 (Phone)
+47 5 595 9543 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Ragnar Tveteras

Stavanger University College ( email )

PO Box 2557
4004 Stavanger
Norway

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