CAPITAL ADJUSTMENT IN US AGRICULTURE AND FOOD-PROCESSING - A CROSS-SECTORAL MODEL

Significant differences exist in the rates of capital adjustment in th e four major sectors of the U.S. economy: agriculture, food, manufactu ring, and services. A multi-output adjustment cost model is specified to compute the rates of capital adjustment. This specification allows us to derive dynamic output supply and investment demand functions for the four sectors, which are then fitted to time-series data. Our esti mates show that capital in agriculture and manufacturing is almost fix ed and adjusts toward respective long-run equilibrium at a rate of abo ut 2% per year. The food processing and services sectors are more flex ible in that their capital stocks fully adjust in less than five years . Thus, the rate of adjustment of agricultural capital is lower than t hat of other sectors in the U.S. economy.