Lia Pacelli (UCL, IFS, LRR and University of Turin), Orazio P. Attanasio, Isabel Reduto dos Reis

Investment Patterns In UK Manufacturing Establishments

In this paper we document the extent to which lumpy investment behaviour is present in UK plant-level data. For this purpose we use the Annual Business Respondents Database (ARD) from 1980 to 1992.

The aim of this paper is twofold. First, it describes an estimation method of capital stock at the establishment level, by asset, based on the ARD. The distinctive feature of this work is the treatment of leased assets. Second, it provides evidence on the extent of non convexities and irreversibility of investment by asset in the UK. It highlights that a large fraction of aggregate investment is accounted for by few establishments that are investing a lot. Furthermore, for each establishment, a large fraction of its investment activity over a long horizon is accounted for by a few large episodes. Significant differences emerge in the investment patterns by asset, where “buildings and land” are the most rigid asset, “plant and machinery” the most flexible, “vehicles” are a rigid but not irreversible investment.

Innovative contributions to the descriptive literature on this topic are: focus on the UK, disaggregate analysis by asset, statistics on net as well as gross investment rates.

Keywords: investment; non convex adjustment costs; irreversibility; plant-level evidence

JEL Codes: D2

Session: 3e   Room 2004   Category: Investment

Paper