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Persistence of Capacity Shortage and the Role of Adjustment Costs
Author(s) -
Driver Ciaran,
Meade Nigel
Publication year - 2001
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/1467-9485.00183
Subject(s) - economics , economic shortage , investment (military) , persistence (discontinuity) , capital (architecture) , capital investment , microeconomics , econometrics , monetary economics , labour economics , finance , engineering , linguistics , philosophy , geotechnical engineering , archaeology , government (linguistics) , politics , political science , law , history
This paper finds that plant capital constraints on output in UK industry tend to persist for surprisingly long periods, reflecting a slow response of capital investment. The paper examines the conventional view that this response pattern may be explained by cost of adjustment. Using UK time‐series data for a small number of industry groups, it is shown that the observed dynamics of capital constraints (capital shortage) are not fully explained by a quadratic adjustment cost model or by alternative forms of adjustment cost.