DP5422 Innovation, Machine Replacement and Productivity

Author(s): Omar Licandro, MarĂ­a Reyes Maroto Illera, Luis Puch
Publication Date: December 2005
Keyword(s): investment spikes, labour productivity, learning effects, machine replacement, technological innovation
JEL(s): C33, E22, L60
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5422

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.