Technology, Capital Spending, and Capacity Utilization

15 Pages Posted: 26 Jun 2007

See all articles by Cynthia Bansak

Cynthia Bansak

Saint Lawrence University - Department of Economics

Norman J. Morin

Board of Governors of the Federal Reserve System

Martha Starr

American University - Department of Economics

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Abstract

Capacity utilization is a closely watched macroeconomic indicator because rising utilization may signal rising inflationary pressures. However, recent technological changes have increased the flexibility of relationships between inputs and outputs, potentially eroding the predictive value of the utilization rate. This paper examines relationships between technology, capital spending, and capacity utilization. After establishing conceptually that the effect of recent technological changes on capacity utilization is ambiguous, we investigate the effect empirically using panel data on 111 manufacturing industries. Our results suggest that, for the average industry, the technological change of the 1974-2000 period lowered capacity utilization by 0.2-2.3 percentage points.

Suggested Citation

Bansak, Cynthia and Morin, Norman J. and Starr, Martha, Technology, Capital Spending, and Capacity Utilization. Economic Inquiry, Vol. 45, No. 3, pp. 631-645, July 2007, Available at SSRN: https://ssrn.com/abstract=994413 or http://dx.doi.org/10.1111/j.1465-7295.2007.00019.x

Cynthia Bansak (Contact Author)

Saint Lawrence University - Department of Economics ( email )

One Romoda Drive
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Norman J. Morin

Board of Governors of the Federal Reserve System ( email )

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Washington, DC 20551
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202-736-1937 (Fax)

Martha Starr

American University - Department of Economics ( email )

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Washington, DC 20016-8029
United States
202-885-3747 (Phone)

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