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Technology, capital spending, and capacity utilization

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This paper examines the relationships between technology, capital spending, and capacity utilization. Recent technological changes have increased the flexibility of relationships between inputs and outputs in manufacturing, which may have eroded the predictive value of the utilization rate. This paper considers how technology might be expected to affect utilization. We show that recent changes could either lower average utilization by making it cheaper to hold excess capacity, or raise utilization by making further changes in capacity less costly and time-consuming. We then examine the effects of technology on utilization, using data on 111 manufacturing industries from 1974 to 2000. The results suggest that, for the average industry, the technological change of that period had a modest but appreciable effect, shaving between 0.2 percentage point and 2.3 percentage points off the utilization rate.

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  • Cynthia Bansak & Norman J. Morin & Martha Starr-McCluer, 2004. "Technology, capital spending, and capacity utilization," Finance and Economics Discussion Series 2004-30, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2004-30
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    3. Michalis Nikiforos, 2020. "Notes on the Accumulation and Utilization of Capital: Some Empirical Issues," Economics Working Paper Archive wp_953, Levy Economics Institute.
    4. 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).
    5. 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.
    6. 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.
    7. 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.
    8. 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).
    9. 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.
    10. 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.
    11. 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.
    12. 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.
    13. 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).
    14. 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.
    15. 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.
    16. 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.
    17. Arto Kovanen, 2019. "Wage Growth Puzzle and Capacity Utilization," Applied Economics and Finance, Redfame publishing, vol. 6(2), pages 15-31, March.
    18. Wang, Delu & Wang, Yadong & Jiang, Wuding & Shi, Xunpeng, 2023. "Has outward foreign direct investment alleviated industrial overcapacity in China? An empirical test of the upstream and downstream industrial links," Structural Change and Economic Dynamics, Elsevier, vol. 67(C), pages 250-263.
    19. 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.
    20. Miao Wang & Hong Zhuang, 2021. "FDI and educational outcomes in developing countries," Empirical Economics, Springer, vol. 61(6), pages 3505-3539, December.

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    More about this item

    Keywords

    Industrial capacity; Technology;

    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

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