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Alternative Approach of Measuring Capacity Utilization

Author

Listed:
  • Salim , Ruhul A.

    (Associate Professor, Department of Economics, Jahangirnagar University, Savar, Dhaka Bangladesh.)

Abstract

Capacity utilization (CU) one of the important indicators for measuring economic performance of production units. It is important for investment planning and resource allocation. In the literature, there are a number of CU measures. In particular, the 1980s witnessed several econometric measures1. Although these measures are important contribution in the literature, they have two severe limitations. These measures do not take into account individual input response (arising from the application) to output and separate the random noise1 while measuring capacity utilization. Drawing on the arguments of Klein (1960) and Fare et al (1989), the aim of this paper is to suggest a methodology for measuring capacity utilization of any production unit, which overcome these stringent limitations. The framework develops from observed inputs and output to measure capacity utilization; based on the best practice performance of all firms in the sampl

Suggested Citation

  • Salim , Ruhul A., 1997. "Alternative Approach of Measuring Capacity Utilization," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 25(3-4), pages 219-228, Sept-Dec.
    • Handle: RePEc:ris:badest:0385
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    Cited by:

    1. Moges Tufa & Mans Söderbom & Zerayehu Sime, 2023. "The Impact of Sector-Specific Industrial Policy on Manufacturing Firm Performance: Quasi-experimental Evidence from Ethiopian Chemical Industries," Journal of Industry, Competition and Trade, Springer, vol. 23(3), pages 363-397, December.

    More about this item

    Keywords

    Coefficients; Capacity utilization; Economic models; Development studies; Potential output; Production functions; Regression coefficients; Production estimates; Economic policy;
    All these keywords.

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines

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