An empirical analysis of lumpy investment: the case of US petroleum refining industry

This paper employs five econometric models to examine lumpy investment and investigates the investment behavior of the US petroleum refining industry. Firms in the industry are classified into three groups by their size. All three groups show zero investment, disinvestment and investment in accordance with economic conditions. The analysis finds the minimum amount of investment and disinvestment for each group, which suggests that the size of fixed costs of investment is substantial, regardless of firm size. However, small firms adjust capital stock more slowly than medium or large firms. The analysis also suggests the existence of a convex adjustment cost. (C) 2002 Elsevier Science B.V. All rights reserved.