Capacity utilization in emerging economy firms: Some new insights related to the role of infrastructure and institutions

Rajeev Goel and Michael Nelson

The Quarterly Review of Economics and Finance, 2021, vol. 79, issue C, 97-106

Abstract: This paper adds to the literature on capacity utilization at the firm level by considering the influences of institutions. Specifically, we consider the threat of informal competition as a sign of weakness of internal institutions, and corruption as a signal of the weakness of external institutions. The extant literature has generally considered the role of market and technical factors in dictating capacity utilization. Results, using data across more than 100 nations, show that both corruption and informal competition undermine firms' incentives to use capacity maximally. We also consider the role of infrastructure bottlenecks. Our findings showed that water supply constraints and severe electric supply restrictions limited firms’ ability to utilize capacity, but transportation limitations were not similarly binding. Further, firms' attributes, including size, age, ownership structure, and managerial experience have important bearings. An important implication is that firms’ inability to utilize capacity might be rooted in factors beyond technical constraints.

Keywords: Capacity utilization; Corruption; Informal economy; Z-inefficiency; Institutions; X-inefficiency; Infrastructure (search for similar items in EconPapers)
JEL-codes: D24 L25 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:79:y:2021:i:c:p:97-106

DOI: 10.1016/j.qref.2020.05.011

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