Demand Uncertainty and the Capital-Labor Ratio: Evidence from the U.S. Manufacturing Sector

Vivek Ghosal ()

The Review of Economics and Statistics, 1991, vol. 73, issue 1, 157-61

Abstract: Richard Hartman (1976) and Duncan M. Holthausen (1976) showed that firms' input choices may be affected by demand uncertainty. Specifically, uncertain demand conditions may lead to firms operating with a lower capital-ratio. This result has potentially important implications for the analysis of factor demand and factor productivity. The author constructs measures of demand uncertainty and examines the above relationship for a sample of 125 U.S. manufacturing industries. Results show that there exists a significant negative relationship between demand uncertainty and the capital-labor ratio. Copyright 1991 by MIT Press.

Date: 1991
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