Plant Exit, Vintage Capital and the Business Cycle
Kjell G Salvanes () and
Ragnar Tveterås ()
Journal of Industrial Economics, 2004, vol. 52, issue 2, 255-276
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.
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