DIRECT AND INDIRECT MEASURES OF CAPACITY UTILIZATION: A NON-PARAMETRIC ANALYSIS OF US MANUFACTURING*

Abstract

We measure the capacity output of a firm as the maximum amount producible by a firm given a specific quantity of the quasi-fixed input and an overall expenditure constraint for its choice of variable inputs. We compute this indirect capacity utilization measure for the total manufacturing sector in the USA as well as for a number of disaggregated industries, for the period 1970–2001. We find considerable variation in capacity utilization rates both across industries and over years within industries. Our results suggest that the expenditure constraint was binding, especially in periods of high interest rates.

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