Estimation Of Capacity Utilization And Its Use In Total Factor Productivity Measurement

Capacity utilization is also known as device utilization, which measures the production capacity, or whether the device has been fully utilized. Because it can reflect the operation of the economy whether in the state of full utilization of resources or not, capacity utilization is also a very important indicator to measure the degree of economic development and the analysis of economic efficiency. The index has been widely used in foreign academic.Unfortunately, the index is no in our country’s common statistical caliber. Although there are some literatures using a variety of methods to indirectly estimate the capacity utilization, but these methods set a simpler model than the real economic, and ignored many factors that may affect the capacity utilization, and they can not explain capacity utilization changes over time. So, in theory, the methods that direct calculate the capacity utilization are more attractive. In this paper, we introduce a direct method to calculate the capacity utilization of Chinese industrial.TFP generally showing a significant procyclical characteristic, this characteristic has been concerned by the literature for a long period. Variable utilization of inputs (or demand shocks) is traditional explanations for TFP procyclicity. The procyclical change of capacity utilization will lead to higher fluctuations of the actual capital investment than the observed capital investment fluctuations, leading a higher TFP fluctuation than the actual technology fluctuation. We can explain TFP procyclicity with the capacity utilization.Our research is mainly focus on two aspects:1, we estimate Chinese industrial capacity utilization in the period of1995-2009. Results show that Chinese industrial capacity utilization is very low in this whole period, and differs from industries.Capacity utilization in long-term at a low level will cause many problems. Such as the uncommon demand for raw materials and the vicious competition among industries. The problem of low leveled industrial capacity utilization is one of the key issues that need to be resolved, so we use the variable intercept fixed effect model to study the mechanism of the low capacity utilization state. We find that capacity utilization have a strong correlation with industrial economic fluctuation (correlation coefficient is0.38) and the characteristics of the industry itself. Industrial economic fluctuation affects capacity utilization rate by two aspects:demand shocks and enterprise’s behavior of capacity hoarding.2, we verify the relationship of capacity utilization and the TFP procyclicity. The TFP without capacity utilization has significantly procyclicty characteristic, the correlation coefficient between TFP and output growth rate is0.73.This index is much smaller between TFP with capacity utilization and output growth rate:0.54, with a decrease of26%.After HP-filtering, the index still has an obvious decease of23%. The empirical result indicates that capacity utilization is a significant factor of TFP procyclicty in china.