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Correction for variations in capacity utilization in the measurement of productivity growth: A non-parametric approach

Author

Listed:
  • Gu, Wulong

    (Economic Analysis Division, Statistics Canada, Ottawa, ON, Canada)

  • Wang, Weimin

    (Economic Analysis Division, Statistics Canada, Ottawa, ON, Canada)

Abstract

The multifactor productivity growth estimate published by statistical agencies should be corrected for the effect of the short run variations in capacity utilization for such estimate to be a measure of technological progress. But such correction is not normally made as the rate of capacity utilization is often not observed. This paper develops a nonparametric approach for adjusting multifactor productive growth measure for variation in capacity utilization over time. In the approach developed here, the capital utilization measure is derived from the economic theory of production and is estimated by comparing the ex-post return with the ex-ante expected return on capital. The approach offers a practical solution that can be used by statistical agencies to adjust for capacity utilization in their multifactor productivity growth measure. The nonparametric approach is implemented using the data for the manufacturing sector from the Canadian Productivity Program of Statistics Canada, and is found to correct for the bias from the variation in capacity utilization in that sector.

Suggested Citation

  • Gu, Wulong & Wang, Weimin, 2013. "Correction for variations in capacity utilization in the measurement of productivity growth: A non-parametric approach," Journal of Economic and Social Measurement, IOS Press, issue 4, pages 347-369.
    • Handle: RePEc:ris:iosjes:0010
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    Citations

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    Cited by:

    1. Victor Aguirregabiria & Margaret Slade, 2017. "Empirical models of firms and industries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(5), pages 1445-1488, December.
    2. Jianmin Tang & Weimin Wang, 2023. "Capacity Utilization and Production Function Estimation: Implications for Productivity Analysis," International Productivity Monitor, Centre for the Study of Living Standards, vol. 45, pages 178-199, Fall.
    3. Wulong Gu, 2018. "Accounting for Slower Productivity Growth in the Canadian Business Sector after 2000: The Role of Capital Measurement Issues," International Productivity Monitor, Centre for the Study of Living Standards, vol. 34, pages 21-39, Spring.
    4. Pierre-Alain Pionnier & Belén Zinni & Kéa Baret, 2023. "Measuring Capital and Multifactor Productivity: The Role of Asset Depreciation and Initial Capital Stock Estimates," International Productivity Monitor, Centre for the Study of Living Standards, vol. 45, pages 155-177, Fall.
    5. Tang, Jianmin & Wang, Weimin, 2020. "Technological frontier, technical efficiency and the post-2000 productivity slowdown in Canada," Structural Change and Economic Dynamics, Elsevier, vol. 55(C), pages 12-25.

    More about this item

    Keywords

    Capacity utilization; productivity pro-cyclicality; multifactor productivity;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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