Plant-Level Adjustment and Aggregate Investment Dynamics

THE EMPIRICAL INVESTMENT literature is full of disappointments. From time to time waves of new ideas challenge the aggregate investment equation, but these challenges are rarely successful, and progress is, at best, slow. There are serious theoretical obstacles, stemming mostly from the richness of the cross-sectional and time-series scenarios faced by actual investors, from the complexity of the investment technologies available to them, and from the myriad incentive problems that these economic agents face. There are at least as complex, and perhaps insurmountable, data problems. Both rightand left-hand side variables are seldom measured properly. ' In spite of this pessimistic picture, this paper makes a new attempt. By building from the microeconomic actions of individual plants, it