Working Paper: CEPR ID: DP5422
Authors: Omar Licandro; Mara Reyes Maroto Illera; Luis Puch
Abstract: This paper explores the role of replacement and innovation in shaping investment and productivity during episodes of lumpy adjustment in capital. To this purpose we use a rich firm-level panel of Spanish manufacturing data that combines information on equipment investment and firm's strategies. Investment concentrates on episodes of high investment, or investment spikes, but its nature depends upon observable heterogeneity. We find evidence of replacement activity for firms involved in neither process innovation nor plant expansion. Then, we explore how large investment episodes transmit into the evolution of productivity under different innovative strategies. We find that productivity increases after an investment spike in innovative firms. However, long learning curves seem to be associated with innovative investments.
Keywords: investment spikes; labour productivity; learning effects; machine replacement; technological innovation
JEL Codes: C33; E22; L60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| long learning curves (J24) | benefits of investment (G11) |
| investment spikes (G31) | productivity (O49) |
| investment spikes (innovative firms) (O31) | productivity (O49) |
| investment spikes (non-innovative firms) (O31) | productivity (O49) |