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Direct And Indirect Measures Of Capacity Utilization: A Non-Parametric Analysis Of Us Manufacturing

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  • SUBHASH C. RAY
  • KANKANA MUKHERJEE
  • YANNA WU

Abstract

We measure the capacity output of a firm as the maximum amount producible by a firm given a specific quantity of the quasi-fixed input and an overall expenditure constraint for its choice of variable inputs. We compute this indirect capacity utilization measure for the total manufacturing sector in the USA as well as for a number of disaggregated industries, for the period 1970-2001. We find considerable variation in capacity utilization rates both across industries and over years within industries. Our results suggest that the expenditure constraint was binding, especially in periods of high interest rates. Copyright Blackwell Publishing Ltd and The University of Manchester 2006.

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Bibliographic Info

Article provided by University of Manchester in its journal Manchester School.

Volume (Year): 74 (2006)
Issue (Month): 4 (07)
Pages: 526-548

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Handle: RePEc:bla:manchs:v:74:y:2006:i:4:p:526-548

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  1. Berndt, Ernst R & Morrison, Catherine J, 1981. "Capacity Utilization Measures: Underlying Economic Theory and an Alternative Approach," American Economic Review, American Economic Association, American Economic Association, vol. 71(2), pages 48-52, May.
  2. H. Kim, 1999. "Economic Capacity Utilization and its Determinants: Theory and Evidence," Review of Industrial Organization, Springer, Springer, vol. 15(4), pages 321-339, December.
  3. Nelson, Randy A, 1989. "On the Measurement of Capacity Utilization," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 37(3), pages 273-86, March.
  4. Lawrence R. Klein, 1958. "The Measurement of Capacity," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 49, Cowles Foundation for Research in Economics, Yale University.
  5. Morrison, Catherine J, 1985. "Primal and Dual Capacity Utilization: An Application to Productivity Measurement in the U.S. Automobile Industry," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 3(4), pages 312-24, October.
  6. Fare, Rolf & Grosskopf, Shawna & Kokkelenberg, Edward C, 1989. "Measuring Plant Capacity, Utilization and Technical Change: A Nonparametric Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(3), pages 655-66, August.
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Cited by:
  1. Briec, Walter & Kerstens, Kristiaan & Prior, Diego & Van de Woestyne, Ignace, 2010. "Tangency Capacity Notions Based upon the Profit and Cost Functions: A Non-Parametric Approach and a General Comparison," Working Papers, Hogeschool-Universiteit Brussel, Faculteit Economie en Management 2010/04, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  2. Bruno De Borger & Kristiaan Kerstens & Diego Prior & Ignace Van de Woestyne, 2012. "Static efficiency decompositions and capacity utilization: integrating economic and technical capacity notions," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 44(31), pages 4125-4141, November.
  3. Walter Briec & Kristiaan Kerstens & Diego Prior, 2009. "Tangency Capacity Notions Based upon the Pro?t and Cost Functions: A Non-Parametric Approach and a Comparison," Working Papers, IESEG School of Management 2009-ECO-05, IESEG School of Management.
  4. Arnab Deb, 2013. "Economic Reforms, Capacity Utilization, and Productivity Growth in Indian Manufacturing," Alumni working papers 2013-05, University of Connecticut, Department of Economics.
  5. Sudipto Sarkar, 2009. "A real-option rationale for investing in excess capacity," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(2), pages 119-133.

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