Keywords: Capacity, investment, utilization, technology
Abstract: 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
Full paper (674 KB PDF)
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Last update: May 26, 2004