It is important to estimate the capacity and capital utilization rates of an economy when assessing either the economy’s total economic growth or investment behavior within the economy. If the capital and capacity utilization rates were not taken into account, calculations on the production function, on the determinants of labor productivity, and on the contribution of technical progress to output could become biased.
In the economic literature in Taiwan relatively few articles can be found that devote themselves to this topic. Part of the reason for this may be deficiencies in the existing database. Especially important problems are unoptimal statistical methodologies, the rather short time period for which data is available, and a general lack of detail in the available data.
Because it introduces some techniques rarely used in the past in Taiwan, this paper hopes to provide some general concepts on the capacity and capital utilization rates and on their various measurements. More specifically, a labor force utilization rate categorized into eight industries is calculated and the existing capital utilization rate is adjusted according to the nine middle classifications of the manufacturing sector.
The capacities of the eight industries mentioned above are estimated mainly on the basis of the Klein and Preston production function approach (1967), then, the macrocapacity of the whole economy is obtained by weighted average of these subsectors’ capacity, which is compared with another macrocapacity estimated from Okun’s technique. The result of these calculations is found to be acceptable, after due consideration was paid to the business cycle of the Taiwan economy.
