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Capacity Utilization in Indian Paper Industry

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  • Kaustuva Barik

    (Indira Gandhi National Open University)

Abstract

The study estimates the rate of capacity utilization for the Indian paper industry for the period 1973-74 to 1997-98 on the basis of the theoretical framework of variable cost function. It is based on the basic premise that deviation from full utilization of capacity takes place as the levels of certain inputs, particularly capital, are fixed in the short-run and thus can be changed only in the long-run. In order to meet the increase (decrease) in demand, the industry puts the existing capital to more (less) intensive use. The study undertakes empirical estimation of a translog variable cost function by considering three variable inputs, viz., labour, energy and raw material and one quasi-fixed input, capital, on the basis of aggregate industry level data taken from annual survey of industries. It is found that under- utilization of capacity prevails in the Indian paper industry and there has been a decline in the rate of capacity utilization over time.

Suggested Citation

  • Kaustuva Barik, 2005. "Capacity Utilization in Indian Paper Industry," Microeconomics 0503001, EconWPA.
  • Handle: RePEc:wpa:wuwpmi:0503001
    Note: Type of Document - pdf; pages: 20
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    References listed on IDEAS

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    1. Morrison, Catherine, 1988. "Subequilibrium in the North American Steel Industries: A Study of Short Run Biases from Regulation and Utilisation Fluctuations," Economic Journal, Royal Economic Society, vol. 98(391), pages 390-411, June.
    2. Hulten, Charles R., 1986. "Productivity change, capacity utilization, and the sources of efficiency growth," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 31-50.
    3. Diewert, Walter E & Wales, Terence J, 1987. "Flexible Functional Forms and Global Curvature Conditions," Econometrica, Econometric Society, vol. 55(1), pages 43-68, January.
    4. Slade, Margaret E., 1986. "Total-factor-productivity measurement when equilibrium is temporary : A Monte Carlo assessment," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 75-95.
    5. Morrison, C. J. & Berndt, E. R., 1981. "Short-run labor productivity in a dynamic model," Journal of Econometrics, Elsevier, vol. 16(3), pages 339-365, August.
    6. Nelson, Randy A, 1989. "On the Measurement of Capacity Utilization," Journal of Industrial Economics, Wiley Blackwell, vol. 37(3), pages 273-286, March.
    7. Reghubendra, J. & Murty, M.N. & Paul, S. & Rao, B.B., 1992. "An Analysis of Technological Change, Factor Substitution and Economies of Scale in Manufacturing Industries in India," Papers e9214, Western Sydney - School of Business And Technology.
    8. Berndt, Ernst R. & Fuss, Melvyn A., 1986. "Productivity measurement with adjustments for variations in capacity utilization and other forms of temporary equilibrium," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 7-29.
    9. Morrison, Catherine J, 1988. "Quasi-Fixed Inputs in U.S. and Japanese Manufacturing: A Generalized Leontief Restricted Cost Function Approach," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 275-287, May.
    10. J. M. Cassels, 1937. "Excess Capacity and Monopolistic Competition," The Quarterly Journal of Economics, Oxford University Press, vol. 51(3), pages 426-443.
    11. Charles R. Hulten & Sylaja Srinivasan, 1999. "Indian Manufacturing Industry: Elephant or Tiger? New Evidence on the Asian Miracle," NBER Working Papers 7441, National Bureau of Economic Research, Inc.
    12. Lawrence R. Klein, 1958. "The Measurement of Capacity," Cowles Foundation Discussion Papers 49, Cowles Foundation for Research in Economics, Yale University.
    13. Hazilla, Michael & Kopp, Raymond J., 1986. "Testing for separable functional structure using temporary equilibrium models," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 119-141.
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    More about this item

    Keywords

    economic capacity utilization; equilibrium capital stock; Indian paper industry; temporary equilibrium; translog variable cost function;

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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