Endogenous capital utilization and productivity measurement in dynamic factor demand models: Theory and an application to the U.S. electrical machinery industry

Ingmar R. Prucha, M. Ishaq Nadiri

    Research output: Contribution to journalArticlepeer-review

    Abstract

    The literature on dynamic factor demand models has, until recently, largely over-looked the issue of capital utilization. In this paper we allow for variations in the rate of capital utilization within the context of a dynamic factor demand model by adopting a modeling framework within which the firm combines its beginning-of-period stocks with other inputs to produce its outputs as well as its end-of-period stocks. We also define measures of productivity and capacity utilization for the adopted framework. As a by-product, the framework also provides for a consistent decomposition of gross investment into replacement and expansion investment. As an illustration, the model is applied to U.S. electrical machinery data.

    Original languageEnglish (US)
    Pages (from-to)343-379
    Number of pages37
    JournalJournal of Econometrics
    Volume71
    Issue number1-2
    DOIs
    StatePublished - 1996

    Keywords

    • Capacity utilization
    • Capital stock
    • Capital utilization
    • Depreciation
    • Dynamic factor demand
    • Productivity

    ASJC Scopus subject areas

    • Economics and Econometrics

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