It and Beyond: The Contribution of Heterogenous Capital to Productivity

Abstract

This paper explores the relationship between capital composition and productivity using a unique and remarkably detailed data set on firm-level investment in the U.S. Using cross-sectional and longitudinal regressions, I find that several capital types, including computers, communications equipment, and software, are associated with current and subsequent years' productivity. The implied marginal products are derived and compared to official data on rental prices; substantial differences exist for a number of key capital types. I also provide evidence of complementaries and substitutabilities among capital goods - a rejection of the common assumption of perfect substitutability.

Keywords: Capital heterogeneity, investment, production function, estimation

JEL Classification: D21, D24, D29