Technology use and plant closure

This paper aims to contribute to the empirical literature on industrial demography. It analyzes a stratified sample of the Italian metalworking industry composed of 810 plants with more than 10 employees. It considers plant closure over the period 1989-1997. Probit type econometric models are estimated in order to provide evidence on the explanatory factors of the Likelihood of closure with special attention being devoted to technological variables. The paper extends previous empirical results along a number of directions. First, in spite of the fact that use of advanced technologies, especially in the design and engineering sphere, favors survival, remarkable differences do emerge between different individual technologies; ceteris paribus, plants having adopted technologies characterized by sizable, product-specific investments turn out to be less likely to be shut down. In addition, the ownership status of plants is found to influence the probability of closure. Likelihood of survival is lower for plants that belong to multi-unit organizations than for those owned by single-plant firms, even though the difference between the two plant categories decreases with plant size, Altogether, such results point to the relevance of irreversibility and sunk costs for understanding exit behavior. (C) 2001 Elsevier Science B.V. All rights reserved.