IDEAS home Printed from https://ideas.repec.org/a/bla/ecinqu/v45y2007i3p631-645.html
   My bibliography  Save this article

Technology, Capital Spending, And Capacity Utilization

Author

Listed:
  • CYNTHIA BANSAK
  • NORMAN MORIN
  • MARTHA STARR

Abstract

Capacity utilization is a closely watched macroeconomic indicator because rising utilization may signal rising inflationary pressures. However, recent technological changes have increased the flexibility of relationships between inputs and outputs, potentially eroding the predictive value of the utilization rate. This paper examines relationships between technology, capital spending, and capacity utilization. After establishing conceptually that the effect of recent technological changes on capacity utilization is ambiguous, we investigate the effect empirically using panel data on 111 manufacturing industries. Our results suggest that, for the average industry, the technological change of the 1974–2000 period lowered capacity utilization by 0.2–2.3 percentage points. (JEL D24, E22, E31)

Suggested Citation

  • Cynthia Bansak & Norman Morin & Martha Starr, 2007. "Technology, Capital Spending, And Capacity Utilization," Economic Inquiry, Western Economic Association International, vol. 45(3), pages 631-645, July.
    • Handle: RePEc:bla:ecinqu:v:45:y:2007:i:3:p:631-645
    DOI: 10.1111/j.1465-7295.2007.00019.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1465-7295.2007.00019.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1465-7295.2007.00019.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Karl Whelan, 2000. "A guide to the use of chain aggregated NIPA data," Finance and Economics Discussion Series 2000-35, Board of Governors of the Federal Reserve System (U.S.).
    2. Robert J. Gordon, 1998. "Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 297-346.
    3. Valerie A. Ramey & Matthew D. Shapiro, 2001. "Displaced Capital: A Study of Aerospace Plant Closings," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 958-992, October.
    4. Sakellaris, Plutarchos, 2004. "Patterns of plant adjustment," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 425-450, March.
    5. Berndt, Ernst R. & Morrison, Catherine J., 1995. "High-tech capital formation and economic performance in U.S. manufacturing industries An exploratory analysis," Journal of Econometrics, Elsevier, vol. 65(1), pages 9-43, January.
    6. Johannes van Biesebroeck, 2003. "Productivity Dynamics with Technology Choice: An Application to Automobile Assembly," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(1), pages 167-198.
    7. Ruth A. Judson & Ann L. Owen, "undated". "Estimating Dynamic Panel Data Models: A Practical Guide for Macroeconomists," Finance and Economics Discussion Series 1997-03, Board of Governors of the Federal Reserve System (U.S.), revised 10 Dec 2019.
    8. Carol Corrado & Joe Mattey, 1997. "Capacity Utilization," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 151-167, Winter.
    9. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    10. Stephen G. Cecchetti, 1995. "Inflation Indicators and Inflation Policy," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 189-236, National Bureau of Economic Research, Inc.
    11. Paul Nightingale & Tim Brady & Andrew Davies & Jeremy Hall, 2003. "Capacity utilization revisited: software, control and the growth of large technical systems," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 12(3), pages 477-517, June.
    12. John Haltiwanger & Russell Cooper & Laura Power, 1999. "Machine Replacement and the Business Cycle: Lumps and Bumps," American Economic Review, American Economic Association, vol. 89(4), pages 921-946, September.
    13. Matthew D. Shapiro, 1989. "Assessing the Federal Reserve's Measures of Capacity and Utilization," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 181-242.
    14. Prucha, Ingmar R. & Nadiri, M. Ishaq, 1996. "Endogenous capital utilization and productivity measurement in dynamic factor demand models Theory and an application to the U.S. electrical machinery industry," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 343-379.
    15. Thomas N. Hubbard, 2003. "Information, Decisions, and Productivity: On-Board Computers and Capacity Utilization in Trucking," American Economic Review, American Economic Association, vol. 93(4), pages 1328-1353, September.
    16. Niek Nahuis, 2003. "An alternative demand indicator: the 'non-accelerating inflation rate of capacity utilization'," Applied Economics, Taylor & Francis Journals, vol. 35(11), pages 1339-1344.
    17. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    18. Flint Brayton & John M. Roberts & John C. Williams, 1999. "What's happened to the Phillips curve?," Finance and Economics Discussion Series 1999-49, Board of Governors of the Federal Reserve System (U.S.).
    19. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    20. Casey Ichniowski & Kathryn Shaw, 1995. "Old Dogs and New Tricks: Determinants of the Adoption of Productivity-Enhancing Work Practices," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995 Micr), pages 1-65.
    21. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. William Robert Reed, 2015. "On the Practice of Lagging Variables to Avoid Simultaneity," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 77(6), pages 897-905, December.
    2. Santiago J. Gahn, 2020. "Is there a decreasing trend in capacity utilisation in the US economy? Some new evidence," Working Papers PKWP2006, Post Keynesian Economics Society (PKES).
    3. Renata Grzeda Latocha & Gernot Nerb, 2004. "Modelling Short-term Interest Rates in the Euro Area Using Business Survey Data," Journal of Business Cycle Measurement and Analysis, OECD Publishing, Centre for International Research on Economic Tendency Surveys, vol. 2004(1), pages 43-69.
    4. Lu, Juan & Li, He, 2022. "Can high-speed rail improve enterprise capacity utilization? A perspective of supply side and demand side," Transport Policy, Elsevier, vol. 115(C), pages 152-163.
    5. Annie Tubadji & Toby Denney & Don J. Webber, 2021. "Cultural relativity in consumers' rates of adoption of artificial intelligence," Economic Inquiry, Western Economic Association International, vol. 59(3), pages 1234-1251, July.
    6. Pejman Bahramian & Andisheh Saliminezhad, 2021. "Does Capacity Utilization Predict Inflation? A Wavelet Based Evidence from United States," Computational Economics, Springer;Society for Computational Economics, vol. 58(4), pages 1103-1125, December.
    7. W. Robert Reed, 2013. "A Note on the Practice of Lagging Variables to Avoid Simultaneity," Working Papers in Economics 13/32, University of Canterbury, Department of Economics and Finance.
    8. Michalis Nikiforos, 2020. "Notes on the Accumulation and Utilization of Capital: Some Empirical Issues," Economics Working Paper Archive wp_953, Levy Economics Institute.
    9. Arto Kovanen, 2019. "Wage Growth Puzzle and Capacity Utilization," Applied Economics and Finance, Redfame publishing, vol. 6(2), pages 15-31, March.
    10. Belaid RETTAB & Ton KWAAK & Azzeddine AZZAM, 2010. "An Optimization Procedure for Estimating the Stock of Capital: Application to Ten Production Sectors of Dubai," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 10(1).
    11. Gahn, Santiago José, 2021. "On the adjustment of capacity utilisation to aggregate demand: Revisiting an old Sraffian critique to the Neo-Kaleckian model," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 325-360.
    12. Arto Kovanen, 2019. "Perspectives From the Past for the Federal Reserve¡¯s Monetary Policy and Communication," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(1), pages 31-51, January.
    13. Santiago J. Gahn, 2022. "Towards an explanation of a declining trend in capacity utilisation in the US economy," Working Papers PKWP2214, Post Keynesian Economics Society (PKES).
    14. Ghulam, Yaseen, 2017. "Long-run performance of an industry after broader reforms including privatization," Research in International Business and Finance, Elsevier, vol. 42(C), pages 745-768.
    15. Dawei (David) Zhang & Barrie R. Nault & Xueqi (David) Wei, 2019. "The Strategic Value of Information Technology in Setting Productive Capacity," Information Systems Research, INFORMS, vol. 30(4), pages 1124-1144, December.
    16. Wang, Zhan-ao & Zheng, Chengsi, 2022. "Is technological innovation the cure for overcapacity? Exploring mediating and moderating mechanisms," Journal of Business Research, Elsevier, vol. 147(C), pages 348-361.
    17. Jun Liu & Yu Qian & Huihong Chang & Jeffrey Yi-Lin Forrest, 2022. "The Impact of Technology Innovation on Enterprise Capacity Utilization—Evidence from China’s Yangtze River Economic Belt," Sustainability, MDPI, vol. 14(18), pages 1-17, September.
    18. Petrit Gashi & Iraj Hashi & Geoff Pugh, 2014. "Export behaviour of SMEs in transition countries," Small Business Economics, Springer, vol. 42(2), pages 407-435, February.
    19. Miao Wang & Hong Zhuang, 2021. "FDI and educational outcomes in developing countries," Empirical Economics, Springer, vol. 61(6), pages 3505-3539, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Meri Davlasheridze & Pinar C. Geylani, 2017. "Small Business vulnerability to floods and the effects of disaster loans," Small Business Economics, Springer, vol. 49(4), pages 865-888, December.
    2. MAÏ ASSAN CHEDI, Maman, 2022. "Does Defence Expenditure Affect Education and Health expenditures in Saharan Africa?," African Journal of Economic Review, African Journal of Economic Review, vol. 10(4), September.
    3. Beate Jochimsen & Robert Nuscheler, 2011. "The political economy of the German Lander deficits: weak governments meet strong finance ministers," Applied Economics, Taylor & Francis Journals, vol. 43(19), pages 2399-2415.
    4. Fratzscher, Marcel & Müller, Gernot J. & Bussière, Matthieu, 2004. "Current accounts dynamics in OECD and EU acceding countries - an intertemporal approach," Working Paper Series 311, European Central Bank.
    5. Binder, Michael & Hsiao, Cheng & Pesaran, M. Hashem, 2005. "Estimation And Inference In Short Panel Vector Autoregressions With Unit Roots And Cointegration," Econometric Theory, Cambridge University Press, vol. 21(4), pages 795-837, August.
    6. Jeannine Bailliu & Eiji Fujii, 2004. "Exchange Rate Pass-Through and the Inflation Environment in Industrialized Countries: An Empirical Investigation," Staff Working Papers 04-21, Bank of Canada.
    7. Dawei (David) Zhang & Barrie R. Nault & Xueqi (David) Wei, 2019. "The Strategic Value of Information Technology in Setting Productive Capacity," Information Systems Research, INFORMS, vol. 30(4), pages 1124-1144, December.
    8. Rahman, Mizanur, 2008. "The Impact of a Common Currency on East Asian Production Networks and China’s Exports Behavior," MPRA Paper 13931, University Library of Munich, Germany.
    9. Mali Chivakul & Bernhard Kassner, 2019. "Can Consumption Growth in China Keep Up as Investment Slows?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(3), pages 381-412, September.
    10. Bruno Amable & Donatella Gatti & Elvire Guillaud, 2008. "How does Party Fractionalization convey Preferences for Redistribution in Parliamentary Democracies ?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00348878, HAL.
    11. Robert Baumann & Bryan Engelhardt & Victor A. Matheson, 2012. "Labor Market Effects of the World Cup: A Sectoral Analysis," Chapters, in: Wolfgang Maennig & Andrew Zimbalist (ed.), International Handbook on the Economics of Mega Sporting Events, chapter 22, Edward Elgar Publishing.
    12. Felbermayr, Gabriel & Gröschl, Jasmin, 2014. "Naturally negative: The growth effects of natural disasters," Journal of Development Economics, Elsevier, vol. 111(C), pages 92-106.
    13. Zheng, Xinye & Yu, Yihua & Wang, Jing & Deng, Huihui, 2013. "Identifying the determinants and spatial nexus of provincial carbon intensity in China: A dynamic spatial panel approach," MPRA Paper 56088, University Library of Munich, Germany.
    14. Merike Kukk & Karsten Staehr, 2017. "Macroeconomic Factors in the Dynamics of Corporate and Household Saving: Evidence from Central and Eastern Europe," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(11), pages 2585-2608, November.
    15. Barabas, György & Kitlinski, Tobias & Schmidt, Christoph M. & Schmidt, Torsten & Siemers, Lars-H. & Brilon, Werner, 2010. "Verkehrsinfrastrukturinvestitionen: Wachstumsaspekte im Rahmen einer gestaltenden Finanzpolitik. Endbericht - Januar 2010. Forschungsprojekt im Auftrag des Bundesministeriums der Finanzen. Projektnumm," RWI Projektberichte, RWI - Leibniz-Institut für Wirtschaftsforschung, number 72601.
    16. Santos, Gervásio F., 2013. "Fuel demand in Brazil in a dynamic panel data approach," Energy Economics, Elsevier, vol. 36(C), pages 229-240.
    17. Robert Baumann & Bryan Engelhardt & Victor Matheson, 2011. "Labor Market Effects of the World Cup: A Sectoral Analysis," Working Papers 1104, College of the Holy Cross, Department of Economics.
    18. Jochimsen, Beate & Nuscheler, Robert, 2005. "The Political Economy of the German Länder Deficits," Discussion Papers 2005/6, Free University Berlin, School of Business & Economics.
    19. Robert Baumann & Victor A. Matheson, 2013. "Estimating economic impact using ex post econometric analysis: cautionary tales," Chapters, in: Plácido Rodríguez & Stefan Késenne & Jaume García (ed.), The Econometrics of Sport, chapter 10, pages 169-188, Edward Elgar Publishing.
    20. Swadley, Adam & Yücel, Mine, 2011. "Did residential electricity rates fall after retail competition? A dynamic panel analysis," Energy Policy, Elsevier, vol. 39(12), pages 7702-7711.

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ecinqu:v:45:y:2007:i:3:p:631-645. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/weaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.