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Causes of Excess Capacity

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  • Samidh Pal

Abstract

This study delves into the origins of excess capacity by examining the reactions of capital, labor, and capital intensity. To achieve this, we have employed a novel three-layered production function model, estimating the elasticity of substitution between capital and labor as a nested layer, alongside capital intensity, for all industry groups. We have then selectively analyzed a few industry groups for comparative purposes, taking into account the current government policies and manufacturing plant realities. Ultimately, we recommend that policymakers address the issue of excess capacity by stimulating the expansion of manufacturing plants with cutting-edge machinery. Our findings and recommendations are intended to appeal to academics and policymakers alike.

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  • Samidh Pal, 2023. "Causes of Excess Capacity," Papers 2304.02137, arXiv.org.
    • Handle: RePEc:arx:papers:2304.02137
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    References listed on IDEAS

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    1. Samidh Pal, 2023. "A New Production Function Approach," Papers 2303.14428, arXiv.org.
    2. Wenders, John T, 1971. "Excess Capacity as a Barrier to Entry," Journal of Industrial Economics, Wiley Blackwell, vol. 20(1), pages 14-19, November.
    3. Linh Bui Khac & Huyen Hoang Thi Nhat & Hang Bui Thanh, 2018. "Factor substitution in rice production function: the case of Vietnam," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 31(1), pages 1807-1825, January.
    4. Murphy, Daniel, 2017. "Excess capacity in a fixed-cost economy," European Economic Review, Elsevier, vol. 91(C), pages 245-260.
    5. Tamara TODOROVA, 2015. "Is There Excess Capacity Really?," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 6(2), pages 128-144.
    6. K. Sato, 1967. "A Two-Level Constant-Elasticity-of-Substitution Production Function," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 34(2), pages 201-218.
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