Yj. Lee et Jk. Kwon, INTERPRETATION AND MEASUREMENT OF CAPACITY UTILIZATION - THE CASE OF KOREAN MANUFACTURING, Applied economics, 26(10), 1994, pp. 981-990
This paper focuses attention on the conceptual difference between opti
mal (ex ante) and actual (ex post) capacity utilization (CU). The dyna
mic version of the efficient output approach to capacity utilization w
hich this paper presents is theoretically superior to other alternativ
e approaches. Our concept of optimal CU has been applied to estimate C
U measures for Korean manufacturing. We find that our measure of CU ex
plains the trends and cycles in Korean economy rather convincingly, an
d that Korean manufacturing has adjusted much more flexibly to market-
demand shocks than it has to exogenous changes in factor prices. From
the examination of the determinants of CU we find that, while wages an
d material prices have positive effects on CU, energy prices and capit
al stock have negative effects. The study also implies that overambiti
ous government incentive policies to stimulate investment may have an
adverse effect on capacity utilization.