Industrial Capacity and Industrial Investment - FEDERAL RESERVE BANK of NEW YORK

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Research Papers

Industrial Capacity and Industrial Investment

May 1995 Number 9510

Author: Charles Steindel

This paper examines the relationship between capacity growth and the growth and composition of investment. Because capacity is an index of the maximum sustainable output of an industry, capacity growth is unlikely to be determined solely by the growth of an industry's fixed capital stock. Statistical analysis of two-digit manufacturing industries finds that labor force growth, as well as capital stock growth, also helps explain the growth of capacity over the 5-year periods between Censuses of manufacturing. There is evidence that changes in the composition of an industry's capital stock are associated with changes in the growth of its capacity, with more rapid growth being associated with a shift away from more conventional capital types. Application of the statistical analysis to 1993 and 1994 suggests, at most, a fairly modest understatement of capacity growth (and overstatement of utilization rates), even taking into account the recent capital spending surge.

Available only in PDF PDF

18 pages / 539 kb

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