This research consists of two related projects. The first is a theoretical and empirical investigation of the connection between investment flow, employment growth, and productivity growth at the plant level, as well as the consequent aggregate implications. This research will include the development of theoretical models and an empirical evaluation of the resulting propositions using the Longitudinal Research Database (LRD). Important issues to be investigated include: the relevance of non-convexities in the capital and labor adjustment process, the connection between these factor flows and productivity growth and associated aggregate i implications. The second topic analyzes financial markets and the flow of inputs across plant sits. The theme here is that the financial markets facilitate the flow of capital across production units due to differences in productivity at the various sites. Theoretical models stressing the implications of plant and sector specific shocks will be analyzed under alternative assumptions about the structure of factor and financial markets. The LRD will then be used to evaluate implications of the models developed under these alternative hypotheses.
