The impact of excess capacity over the investment falloff. Exploring the effects based on industry level data

PÉREZ ARTICA, RODRIGO

Bariloche

Congreso; LII Reunión Anual de la Asociación Argentina de Economía Política; 2017

Asociación Argentina de Economía Política

The impact of excess capacity over the investment falloff Exploring the effects based on industry level dataWe document a widespread decline in the rate of capacity utilization in the US manufacturing industry during the last decades, which parallels a worsening trend of gross capital formation. We conduct several exploratory exercises to investigate whether the capacity utilization rates actually had an impact over the investment performance during 1952-2014. We find evidence of a Granger-causality effect with the positive, theoretically expected sign for a substantial proportion of the manufacturing industries, implying that the decline in capacity utilization must have had a deterring effect over investment within the sector. Further, our vector auto-regressive estimates imply a non-trivial quantitative impact of utilization rates over investment, which explains a decline ranging between 5 and 14% of average investment rate in 1990-2014. Finally, by applying a rolling regression we show that, after having peaked during the 1990`s investment boom in the US, the strength of such effect began to weaken in the aftermath of the 2001 financial crisis.