Structural identification of high and low investment regimes

We propose a structural model to investigate the existence and possible differences between low and high regimes of investment expenditures in equipment at the firm level. The existence of such differences is predicted by recent theoretical studies of investment behavior stressing the role of asymmetries and non-convexities in the adjustment cost technology. The structural spike model is estimated for a balanced panel of Dutch firms operating in 13 different industrial sectors. The flexibility of the structural approach explains why the proposed method outperforms models applying “ad hoc” spike definitions often encountered in the empirical literature of lumpy investments.