Fixed Capital Adjustment: Is Latin America Different?

Abstract

We examine capital adjustment patterns using two large and largely novel plant-level data sets from the manufacturing sectors of Colombia and Mexico. The data suggest that irreversibilities play a more important role than in more-advanced economies. However, we do not find support for the presence of increasing returns in the adjustment cost technology, such as arising from fixed costs. Firms go through periods of inaction and rarely sell capital, but they do not invest at discrete times only. An examination of the dynamic patterns of adjustment of factors differing in their flexibility supports this interpretation.

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