Changes In Capacity Utilization Research Articles

Use of catch and effort data to monitor trends in economic performance in fisheries

Abstract In many low-valued fisheries, the quantity and types of data that might be available to support fisheries management are often limited. Generally, information on the economic performance of the fishery is low in priority in these fisheries. Basic catch and effort information, however, may contain implicit information about economic performance of the vessels. From these data, technical efficiency scores and measures of capacity utilization can be derived. The technical efficiency score can provide a proxy measure of the distribution of economic performance, while changes in capacity utilization theoretically reflect changes in the economic conditions in the fishery. Given this, changes in these measures over time should also reflect changes in economic outcomes and performance. To test this, we use data from a data-rich fishery, including catch and effort information as well as detailed economic information (i.e. vessel-level profitability). Key technical performance measures are estimated using data envelopment analysis and compared with the economic performance measures. We show that these technical performance measures can provide useful indicators of changes in economic performance when economic information is not available.

Are Firm Markups Boosting Inflation? A Post-Keynesian Institutionalist Approach to Markup Inflation in Select Industrialized Countries

ABSTRACT Starting in 2021, the current inflation process has spurred plenty of discussion in academic and policy circles. This paper studies the relationship between firms’ markups and inflation during the 2021–22 inflation surge in several industrialized countries. It begins by explaining markup inflation and its critics in the context of the current debate over the sources of inflation. Then it reviews the characteristics of markup inflation within the post-Keynesian theory of markup pricing and complementing it with the Institutionalist approach to inflation that distinguishes between basic inflationary pressures and propagation mechanisms. The second part assesses markup inflation for several industrialized countries using descriptive statistics and conventional econometrics. The main contribution falls in empirically estimating markups considering the contribution of material cost and controlling for changes in capacity utilization over time. It concludes that there is some evidence pointing at markup inflation and, importantly, the existence of markup inflation leads to rejecting any wage-price spiral.

The Effect of Local Subsidy Competition on Excess Capacity in China: Empirical Study Based on Propensity Score Matching-DID

Local governments subsidize enterprises directly or indirectly by various means, which may lead to the over-investment behaviors of enterprises and then induce serious overcapacity problem. How do local government behaviors affect the production and capacity decisions of the enterprises? Previous studies primarily focus on the impacts of institutional factors on overcapacity but ignore the problem of information asymmetry in the market. Moreover, only a few researchers have done the empirical studies on this topic. This paper combines Chinese unique institutional background and asymmetric information environment to build a two-period dynamic game model with incomplete information, so as to explore a new mechanism of the impact of local subsidy competition on overcapacity in China. We find that the excess capacity ratio induced by local subsidy competition is larger than the normal excess capacity ratio when the market information is asymmetric. And the more subsidies an enterprise receives, the more likely the industry has overcapacity. Based on the micro-data of enterprises from 2001 to 2007 in China, this paper uses the propensity score matching difference-in-difference method to do the empirical test. The results show that: for those enterprises who have received the subsidies, the overcapacity rate after the subsidies rises by about 1% to 3%. And compared with those non-subsidized enterprises, the overcapacity rate of subsidized enterprises rises by about 2% to 12%, which indicates that local subsidies could significantly inhibit the capacity utilization rate of enterprises and exacerbate the overcapacity. This paper provides not only empirical evidence for the impact of local subsidies on overcapacity, but also some policy implications for the governments to deal with overcapacity. Firstly, the interest distribution mechanism between central and local governments should be rationalized, such as improving Chinese financial management system, which could be an institutional method used to regulate the behavior of local governments. Secondly, it is necessary to strictly formulate and implement the local subsidy rules and the local administrative accountability system, so as to strictly inhibit the local irregular and excessive subsidies. Thirdly, an effective adjustment mechanism for the local subsidies ought to be established to adjust the local subsidy structure actively and exert the overall benefits of local subsidies. The marginal contributions of this paper are as follows: firstly, on the basis of Lin Yifu’s wave phenomenon”, this paper pays attention to the subsidy competition of local investments. We construct a dynamic game model with incomplete information to explore the new mechanism of how local subsidy competition affects the overcapacity. Moreover, we take the lead in using the propensity score matching difference-in-difference method to empirically test the impact of local subsidy competition on overcapacity, and focus on the changes in capacity utilization of enterprises before and after local subsidies. It not only can effectively alleviate the endogenous problem, but also provides some empirical and technical reference for follow-up research.

Expectations and Stability in the Kaleckian Growth Model

A central element in the canonical Kaleckian growth model is the demand-led output-adjustment stability condition known as the Keynesian stability condition. This condition requires that, all else constant, saving be less responsive to changes in capital capacity utilization than investment. This paper further explores the plausibility of the Keynesian stability condition by enriching the Kaleckian growth model with a more fully developed Keynesian theory of expectations formation. As a result, the responsiveness of investment to changes in capacity utilization is reduced, and through mechanisms that have clear and plausible behavioural underpinnings. It therefore becomes more likely (in principle) that the Keynesian stability condition will hold in practice. The paper also explores the consequences of such re-specification of investment behaviour for certain comparative static results associated with the canonical Kaleckian growth model.

Threshold cointegration between inflation and US capacity utilization

ABSTRACTAn analogue to the Phillips curve shows a positive relationship between inflation and capacity utilization. Some recent empirical work has shown that this relationship has broken down when using data after the mid-1980s. We empirically investigate this issue using several threshold error correction models. We find, in the long run, a 1% increase in the rate of inflation leads to approximately a 0.0046% increase in capacity utilization. The asymmetric error correction structure shows that changes in capacity utilization show significant corrective measures only during booms while changes in inflation correct during both phases of the business cycle with the corrections being stronger during recessions. We also find that, in the short run, changes in the inflation rate do Granger cause capacity utilization while changes in capacity utilization do not Granger cause inflation. The Granger causality from inflation to capacity utilization can be interpreted as supporting recent calls made in the popular press by some economists that it may be desirable for the Federal Reserve Bank to try to induce some inflation. However, it is also possible to interpret these Granger causality results as arising because both variables respond to some more fundamental set of variables with the inflation rate simply responding sooner. The lack of Granger causality from capacity utilization to inflation casts doubt on the older view that capacity utilization could be a leading indicator for future inflation.

Expectations and Stability in the Kaleckian Growth Model

A central element in the canonical Kaleckian growth model is the demand-led output-adjustment stability condition known as the Keynesian stability condition. This condition requires that, all else constant, saving be more responsive to changes in capital capacity utilization than investment. This paper further explores the plausibility of the Keynesian stability condition by enriching the Kaleckian growth model with a more fully developed Keynesian theory of expectations formation. As a result, the responsiveness of investment to changes in capacity utilization is reduced, and through mechanisms that have clear and plausible behavioural underpinnings. It therefore becomes more likely (in principle) that the Keynesian stability condition will hold in practice. The paper also explores the consequences of such re-specification of investment behaviour for certain comparative static results associated with the canonical Kaleckian growth model.

Exports and Capacity Constraints -- A Smooth Transition Regression Model for Six Euro Area Countries

Traditional specifications of export equations incorporate foreign demand as a demand pull factor and the real exchange rate as a relative price variable. However, such standard export equations have failed to explain the export performance of euro area countries during the crisis period. In particular, the significant gains in export market shares in a number of vulnerable euro area crisis countries did not coincide with an appropriate improvement in price competitiveness. This paper argues that, under certain conditions, firms consider export activity as a substitute of serving domestic demand. The strength of the link between domestic demand and exports is dependent on capacity constraints. Our econometric model for six euro area countries suggests domestic demand pressure and capacity constraint restrictions as additional variables of a properly specified export equation. As an innovation to the literature, we assess the empirical significance through the logistic and the exponential variant of the non-linear smooth transition regression model. In the first case, we differentiate between positive and negative changes in capacity utilization and in the second case between small and large changes of the same transition variable. We find that domestic demand developments are relevant for the short-run dynamics of exports when capacity utilization is low. For some countries, we also find evidence that the substitution effect of domestic demand on exports turns out to be stronger the larger is the deviation of capacity utilization from its average value over the cycle.

Using the Survey of Plant Capacity to Measure Capital Utilization

Most capital in the United States is idle much of the time. By some measures, the average workweek of capital in U.S. manufacturing is as low as 55 hours per 168 hour week. The level and variability of capital utilization has important implications for understanding both the level of production and its cyclical fluctuations. This paper investigates a number of issues relating to aggregation of capital utilization measures from the Survey of Plant Capacity and makes recommendations on expanding and improving the published statistics deriving from the Survey of Plant Capacity. The paper documents a number of facts about properties of capital utilization. First, after growing for decades, capital utilization started to fall in mid 1990s. Second, capital utilization is a useful predictor of changes in capacity utilization and other factors of production. Third, adjustment of productivity measures for variable capital utilization improves statistical and economic properties of these measures. Fourth, the paper constructs weights to aggregate firm level capital utilization rates to industry and economy level, which is the major enhancement to available data.

Cyclical industrial dynamics in the global IT sector: origins and sequencing

In this article, we investigate the origins and dynamics of cyclical behaviour in the IT sector. Our lead–lag analysis shows the historical cyclical patterns involved in the global semiconductor industry, the computer industry, and the flat panel display industry. Based on the Granger causality tests derived from a vector autoregressive (VAR) model, we find that in the global semiconductor industry, changes in capacity utilization precede changes in sales, which in turn leads to changes in semiconductor price.

Intertemporal Effects of Consumption and Their Implications for Demand Elasticity Estimates

Consumption of a good typically diminishes the marginal utility of consuming more, but for how long? This paper adapts a model of consumption capital to allow consumption to have a lasting effect that diminishes the marginal utility of future consumption. Estimates of the model find that it takes the 25th, median and 75th percentile of consumers 19, 32 and 43 days for their marginal utilities to return to pre-consumption levels, and they are forward-looking with respect to these effects. This generates intertemporal substitution of consumption that leads to an overestimate of the own-price elasticity of demand of ten percent when it is estimated using temporary price changes. In addition to these implications consumption effects share with those of durable and storable goods, consumption effects also raise concerns for capacity constrained industries because the timing of consumption affects capacity utilization. In the empirical application in this paper, price variation in one time period generates substantial changes in capacity utilization in that period, but minimal changes in other periods because the intertemporal substitution is spread over many time periods.

Why Did Productivity 09 So Much During the Great Depression?

This study assesses five common explanations for the large decline in U.S. total factor productivity (TFP) during the Great Depression: changes in capacity utilization, factor input quality, and production composition; labor hoarding; and increasing returns to scale. The study finds that these factors explain less than onethird of the 18 percent TFP decline between 1929 and 1933. The rest of the decline remains unexplained. The study offers a potential explanation: declines in organization capital, the knowledge firms use to organize production, caused by breakdowns in relationships between firms and their suppliers, for example. As some firms failed during the Depression, efficiency in surviving firms decreased; managers had to shift time away from production in order to establish new relationships, and firms had to shift to unfamiliar technologies that initially were operated inefficiently. This article originally appeared in the American Economic Review. © 2001 by the American Economic Association.

Entry Dynamics, Capacity Utilisation and Productivity in a Dynamic Open Economy

This paper analyses an open economy Ramsey model with an endogenous labour supply without capital. The technology defines an optimal firm size. Changes to the number of firms is subject to adjustment costs, so that the entry dynamics is determined endogenously. We find that there is a short run transitory productivity dynamic introduced when there is imperfect competition due to changes in capacity utilization. We are able to analyze this in different contexts, including demand and technology shocks, both anticipated and unanticipated.

Why Did Productivity Fall So Much During the Great Depression?

This study assesses five common explanations for the large decline in U.S. total factor productivity (TFP) during the Great Depression: changes in capacity utilization, factor input quality, and production composition; labor hoarding; and increasing returns to scale. The study finds that these factors explain less than onethird of the 18 percent TFP decline between 1929 and 1933. The rest of the decline remains unexplained. The study offers a potential explanation: declines in organization capital, the knowledge firms use to organize production, caused by breakdowns in relationships between firms and their suppliers, for example. As some firms failed during the Depression, efficiency in surviving firms decreased; managers had to shift time away from production in order to establish new relationships, and firms had to shift to unfamiliar technologies that initially were operated inefficiently. This article originally appeared in the American Economic Review. © 2001 by the American Economic Association.

A note on the theory of demand-led growth

this paper presents a demand-led growth model where an exogenous investment function drives capital accumulation through a Bernoulli differential equation. In such framework investment generates savings through changes in capacity utilization and/or income distribution, making economic growth totally demand-led. Taking a Structuralist perspective, the model is purposefully made to be consistent with different Keynesian closures for the investment function, as well as with different assumptions about savings’ adjustment to investment.

Capacity utilization rates and unemployment rates: are they complements or substitutes in warning about future inflation?

This research examines capacity utilization as a measure of economic slack in the US economy. Many macroeconomists have questioned the use of capacity utilization as a measure of economics slack on several fronts. The first issue revolves around the definition and accuracy of measurement of the capacity utilization rate in the US economy. Since this research use existing Federal Reserve measures of capacity utilization no insights into the definition and measurement issues are offered other than the fact that a consistent role is found for two different Fed measures of capacity utilization in explaining inflation. The second issue effectively involves the concern as to robustness of the link between the capacity utilization rate and inflation. It was found that there is indeed reason for the Federal Reserve to take note of changes in capacity utilization when trying to determine its policy position with regard to inflation. Clearly, the high capacity measure developed in this research offers distinct information about the inflation process. The third issue raises the question as to whether the capacity utilization and unemployment rates are complements or substitutes in the inflation equation. Both rates tend to provide similar information regarding price changes at low levels of aggregate resource usage. However, as resource usage in the economy becomes increasingly close to its maximum potential, the labour market impact on inflation, as capture by unemployment rate measures, is distinctly different from that of capacity constraints. Finally, if the capacity utilization rate is indeed a useful measure of inflationary pressure, is there a threshold level of the capacity utilization rate above which policymakers should become particularly concerned about the potential of accelerating inflation? It was found that across two measures of inflation, the widely discussed capacity threshold level is in the 84-85% range.

Capacity utilization rates and unemployment rates: are they complements or substitutes in warning about future inflation?

This research examines capacity utilization as a measure of economic slack in the US economy. Many macroeconomists have questioned the use of capacity utilization as a measure of economics slack on several fronts. The first issue revolves around the definition and accuracy of measurement of the capacity utilization rate in the US economy. Since this research uses existing Federal Reserve measures of capacity utilization, no insights into the definition and measurement issues are offered other than the fact that a consistent role was found for two different Fed measures of capacity utilization in explaining inflation. The second issue effectively involves the concern as to robustness of the link between the capacity utilization rate and inflation. There is indeed reason for the Federal Reserve to take note of changes in capacity utilization when trying to determine its policy position with regard to inflation. Clearly, the high capacity measure developed in this research offers distinct information about the inflation process. The third issue raises the question as to whether the capacity utilization and unemployment rates are complements or substitutes in the inflation equation. Both rates tend to provide similar information regarding price changes at low levels of aggregate resource usage. However, as resource usage in the economy becomes increasingly close to its maximum potential, the labour market impact on inflation, as capture by unemployment rate measures, is distinctly different from that of capacity constraints. Finally, if the capacity utilization rate is indeed a useful measure of inflationary pressure, is there a threshold level of the capacity utilization rate above which policymakers should become particularly concerned about the potential of accelerating inflation? Across two measures of inflation, the widely discussed capacity threshold level is in the 84-85% range.

Fluctuations in productivity growth rates and input utilization in U.S. manufacturing

Recent work suggests that the utilization rate of inputs (that is, the intensity with which inputs are used) varies over time and partly explains procyclical productivity. To confirm this, the panel data of the “NBER Manufacturing Productivity Database” (450 4-digit industries from 1958 to 1991) [Bartelsman and Gray, 1994] were analyzed to determine the year-by-year fluctuations in total factor productivity growth rates and the utilization rates of nonmaterial inputs. The utilization rate was found to be procyclical. When the gross domestic product (GDP) growth rate is 1 percentage point above normal, the utilization rate increases 2.5 percent. After this correction, productivity growth rates are still found to be procyclical, though its correlation with GDP growth is half that of the uncorrected Solow residual. That is, demand shocks can explain half of the procyclicality of productivity growth rates, but real business cycles still cannot be ruled out. Lastly, the results are compared with the Federal Reserve's capacity utilization statistics. It is shown that the latter actually measures a combination of capacity utilization and productivity shifts and, hence, overstates changes in capacity utilization.

The cyclical nature of markups in Canadian manufacturing: A production theory approach

AbstractIn this paper the effects of cost and demand characteristics on the magnitude and cyclical behaviour of markups in Canadian manufacturing are measured within a production theory framework. Price to marginal cost ratios for various manufacturing industries are computed, and the impact art their secular and cyclical trends from changes in capacity utilization, scale economies, variable input prices, import competition, unemployment and other exogenous market and technological determinants are explored using adjusted markup indexes and elasticities. The measured price margins seem weakly procyclical. Further, evaluation of the determinants of these cycles suggests that the procyclical nature of markups is primarily related to exogenous factors affecting costs such as energy price ‘shocks’, and that cost characteristics underlying scale economies provide a countercyclical influence that counteracts the profitability arising from markups.

Morrison's measure of capacity utilization: A critique

Morrison (1986) has developed and used new capacity utilization measures based on an optimization framework to adjust productivity growth for changes in capacity utilization. She argues that we can adjust productivity growth for variations in capacity utilization by dividing a conventional productivity growth rate by a capacity utilization measure. However, Morrison's analysis is based on a conceptual error, which she recognizes in later research. This error can have considerable empirical significance.

Analysis of regional productivity with capital as a quasi-fixed factor

Most existing studies of regional productivity growth do not incorporate the effect of variations in capacity utilization on changes in output. By failing to do so, their factor productivity estimates are biased. To overcome this shortcoming, we adjust multifactor productivity growth measure for changes in capacity utilization. Our technique recognizes that capital is a quasi-fixed factor which implies that capital in the short run can be either under- or over-utilized by a firm. Our results from 1974 to 1978 show that capacity adjusted multifactor productivity growth measure exceeds capacity unadjusted multifactor productivity growth measure for the nine census divisions. The bias in the capacity unadjusted measure of multifactor productivity growth is approximately 8 percent in East North Central and over 33 percent in Mountain. We find that the aggregate factor productivity growth is slowest in the traditional manufacturing belt (Middle Atlantic and East North Central divisions). The level of aggregate factor productivity in the manufacturing belt, however, is almost 33 percent higher than in regions in the south.