Technology Locks, Creative Destruction, and Non-Convergence in Productivity Levels

Plant-level data from U.S. textile industries indicate (1) significant cross-sectional dispersion in plant-level productivity within narrowly defined industries, (2) that highly productive plants grow faster and are less likely to exit, (3) dispersion in productivity is larger in industries with more rapid productivity growth, (4) older plants are bigger, and (5) plant births and closures are common to all four-digit textile industries. This paper presents an extended vintage model to explain these facts. The model assumes that a plant incurs a fixed cost of adopting the current best practice and convex costs of adjusting its capital stock. The model provides alternative explanations for the phenomena of investment spikes and S-shaped diffusion. Finally, the model interprets the fact that entry and exit are positively correlated across industries as evidence that variation in plant turnover across industries is driven by variation in technology rather than variation in demand growth. (Copyright: Elsevier)