Discussion paper

DP17864 Capital Supply Shocks and Investment

We examine how fixed capital supply shocks affect firms’ investment. Using equipment transaction-level data, we find pandemic-driven production disruptions significantly altered capital reallocation patterns across firms. A surge in used capital trading activity softened the investment decline, as firms acquired used capital from distant and dissimilar counterparts. Younger firms were disproportionately affected even though they rarely purchase new capital: while in normal times older firms sell their capital to younger firms, following a supply shock, older firms compete for used capital, pricing out younger firms. Our evidence highlights the crucial role of secondary markets and distributive externalities for corporate investment.


Darmouni, O and A Sutherland (2023), ‘DP17864 Capital Supply Shocks and Investment‘, CEPR Discussion Paper No. 17864. CEPR Press, Paris & London. https://cepr.org/publications/dp17864