Technology, Capital Spending, and Capacity Utilization
San Diego State University, Center for Public Economics Discussion Paper No. 03-06
27 Pages Posted: 29 Jul 2003
Date Written: March 2003
Capacity utilization has been a valuable indicator of inflationary pressure. Yet recent technological changes have made relationships between inputs and outputs more flexible, possibly eroding the predictive value of the utilization rate. This paper shows that, conceptually, technological change could either lower average utilization by making it cheaper to hold excess capacity, or raise utilization by making further changes in capacity less costly. Using data on 111 manufacturing industries from 1974 to 2000, we find that, for the average industry, technological change has had a modest but appreciable effect, shaving 0.2 to 2.3 percentage points off the utilization rate.
Keywords: technology, capital spending, capacity utilization
JEL Classification: D24, E22, E31
Suggested Citation: Suggested Citation