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Energy Prices and Capital Obsolescence: Evidence from the Oil Embargo Period

The average service life of fixed assets in U.S. manufacturing industries increased gradually from 1962 to 1969. Thereafter, it fell sharply up to the mid-1970s. The most rapid change occurred in the three years following the Arab oil embargo. There is reason to believe that these events were causally related: the rapid escalation of petroleum prices caused the decline in useful lives of plant and machinery. The reasoning behind this statement and an analysis of the data on service lives of fixed assets are the topic of this paper.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Security and Geopolitics – International Energy Organizations

JEL Codes: Q41: Energy: Demand and Supply; Prices, G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill, G31: Capital Budgeting; Fixed Investment and Inventory Studies; Capacity, Q48: Energy: Government Policy, D22: Firm Behavior: Empirical Analysis, C58: Financial Econometrics

Keywords: Manufacturing industries, US, Oil price shocks, Fixed assets service life

DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No1-2

Published in Volume 5, Number 1 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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