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Technology, capital spending, and capacity utilization

  • Cynthia Bansak
  • Norman Morin
  • Martha Starr

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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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2004-30.

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Date of creation: 2004
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Handle: RePEc:fip:fedgfe:2004-30
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  1. Matthew D. Shapiro, 1989. "Assessing the Federal Reserve's Measures of Capacity and Utilization," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 181-242.
  2. Karl Whelan, 2000. "A guide to the use of chain aggregated NIPA data," Finance and Economics Discussion Series 2000-35, Board of Governors of the Federal Reserve System (U.S.).
  3. repec:cup:cbooks:9780521818551 is not listed on IDEAS
  4. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  5. Russell Cooper & John Haltiwanger & Laura Power, 1995. "Machine Replacement and the Business Cycle: Lumps and Bumps," NBER Working Papers 5260, National Bureau of Economic Research, Inc.
  6. Flint Brayton & John M. Roberts & John C. Williams, 1999. "What's happened to the Phillips curve?," Finance and Economics Discussion Series 1999-49, Board of Governors of the Federal Reserve System (U.S.).
  7. Anderson, T. W. & Hsiao, Cheng., 1980. "Estimation of Dynamic Models with Error Components," Working Papers 336, California Institute of Technology, Division of the Humanities and Social Sciences.
  8. Stephen G. Cecchetti, 1995. "Inflation Indicators and Inflation Policy," NBER Working Papers 5161, National Bureau of Economic Research, Inc.
  9. Valerie A. Ramey & Matthew D. Shapiro, 2001. "Displaced Capital: A Study of Aerospace Plant Closings," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 958-992, October.
  10. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
  11. Berndt, Ernst R. & Morrison, Catherine J., 1992. "High-tech capital formation and economic performance in U.S. manufacturing industries : an exploratory analysis," Working papers 3419-92., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  12. Carol Corrado & Joe Mattey, 1997. "Capacity Utilization," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 151-167, Winter.
  13. Robert J. Gordon, 1998. "Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 297-346.
  14. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  15. Johannes Van Biesebroeck, 2003. "Productivity Dynamics with Technology Choice: An Application to Automobile Assembly," Review of Economic Studies, Wiley Blackwell, vol. 70(1), pages 167-198, January.
  16. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
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