Non-Linearities in the Expansion of Capital Stock

Arbeitspapier

The empirical identification of non-linearities in investment relies on how investment is assumed to be separated into various regimes. Using German establishment-level panel data, we estimate a two-regime model of replacement and expansion investment which allows us to observe regime separation, an aspect of the data that is typically absent from previous empirical studies. Our results indicate that firms tend to spread the expansion of capital stock over a period of years rather than concentrating investment in a single year. Moreover, there is evidence that investment is more sensitive to fundamentals in the high regime, where establishments both replace and expand capital stock, than in the low regime, where they only invest in replacement. Finally, correcting for endogenous sample selection indicates that this source of bias does not affect the coefficient estimates significantly.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 1132

Classification and Topics

• Classification: Wirtschaft ; Single Equation Models; Single Variables: Truncated and Censored Models; Switching Regression Models; Threshold Regression Models ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models ; Investment; Capital; Intangible Capital; Capacity
• Subject: investment ; non-convex adjustment costs ; sample selection bias ; panel data ; Investition ; Reinvestition ; Anpassungskosten ; Tobin's q ; Schätzung ; Deutschland

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Pfann, Gerard A. ; Letterie, Wilko ; Verick, Sher
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2004

Further information

• Handle: http://hdl.handle.net/10419/20367
• Last update: 10.03.2025, 11:44 AM CET