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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.

Suggested Citation

  • Subhash C. Ray & Kankana Mukherjee & Yanna Wu, 2006. "Direct And Indirect Measures Of Capacity Utilization: A Non-Parametric Analysis Of Us Manufacturing," Manchester School, University of Manchester, vol. 74(4), pages 526-548, July.
  • Handle: RePEc:bla:manchs:v:74:y:2006:i:4:p:526-548
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    References listed on IDEAS

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    1. J. M. Cassels, 1937. "Excess Capacity and Monopolistic Competition," The Quarterly Journal of Economics, Oxford University Press, vol. 51(3), pages 426-443.
    2. Berndt, Ernst R & Morrison, Catherine J, 1981. "Capacity Utilization Measures: Underlying Economic Theory and an Alternative Approach," American Economic Review, American Economic Association, vol. 71(2), pages 48-52, May.
    3. H. Kim, 1999. "Economic Capacity Utilization and its Determinants: Theory and Evidence," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 15(4), pages 321-339, December.
    4. 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, vol. 3(4), pages 312-324, October.
    5. Jim Levinsohn & Wendy Petropoulos, 2001. "Creative Destruction or Just Plain Destruction?: The U.S. Textile and Apparel Industries since 1972," NBER Working Papers 8348, National Bureau of Economic Research, Inc.
    6. Lawrence R. Klein, 1958. "The Measurement of Capacity," Cowles Foundation Discussion Papers 49, Cowles Foundation for Research in Economics, Yale University.
    7. Nelson, Randy A, 1989. "On the Measurement of Capacity Utilization," Journal of Industrial Economics, Wiley Blackwell, vol. 37(3), pages 273-286, March.
    8. 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, vol. 30(3), pages 655-666, August.
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    Citations

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    Cited by:

    1. Bruno De Borger & Kristiaan Kerstens & Diego Prior & Ignace Van de Woestyne, 2013. "Static efficiency decompositions and capacity utilization: integrating economic and technical capacity notions," Applied Economics, Taylor & Francis Journals, vol. 45(24), pages 3529-3529, August.
    2. Ray, Subhash C., 2015. "Nonparametric measures of scale economies and capacity utilization: An application to U.S. manufacturing," European Journal of Operational Research, Elsevier, vol. 245(2), pages 602-611.
    3. repec:eee:rujoec:v:3:y:2017:i:3:p:240-262 is not listed on IDEAS
    4. 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," Economic Modelling, Elsevier, vol. 27(5), pages 1156-1166, September.
    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.
    6. 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 2009-ECO-05, IESEG School of Management.
    7. Kamel HELALI & Maha KALAI, 2013. "Direct and indirect measures of capacity utilization and Economic growth: A nonparametric analysis of the Tunisian industry," E3 Journal of Business Management and Economics., E3 Journals, vol. 4(6), pages 144-155.
    8. Arnab Deb, 2013. "Economic Reforms, Capacity Utilization, and Productivity Growth in Indian Manufacturing," Alumni working papers 2013-05, University of Connecticut, Department of Economics.

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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