Determinants of capacity utilisation by firms in developing countries: evidence from Tunisia

This paper studies the capacity utilisation rates of Tunisian firms using the database collected by the World Bank Enterprise Surveys in 2020. The capacity utilisation indicator is created from the firm's output produced as a proportion of the maximum output when utilising all the available resources. We employ the fractional regression models that ensure predictions within the unit interval. A number of test procedures and estimation methods are used to assess the adequacy of the main alternative regression models dealing with the fractional response variables. Besides the firms' characteristics, we highlight the role of institutions by considering the presence of informal competition and corruption that limit the firms' incentives or ability to maximise the utilisation of capacity. Our findings show that the capacity utilisation is negatively related to the firm's experience in export, and positively associated with the firm size. We also find that political connections are negatively associated with the firm's capacity utilisation. The estimation results reveal that the perception of political instability as an obstacle to the current operations of the establishment significantly affects capacity utilisation. The analysis allows us to suggest some differentiated policy indications for fostering capacity utilisation in Tunisia.