Direct and indirect measures of capacity utilization and Economic growth: A nonparametric analysis of the Tunisian industry

In this paper, we suggest a measure of the short run capacity utilization rates based on a reduced version of the indirect production function of Shephard. More precisely, we define the production capacity as the maximum quantity produced by the firm given the specific quantity of the quasi-fixed input and the overall budget constraint for its choice of variable inputs. The present study extends the non-parametric literature by modeling the indirect production function (restricted and unrestricted) and derives a measure of the capacity utilization rate using the DEA. We used annual data on time series on the overall output as well as the quantities and prices of the inputs published by the Tunisian Institute of Competitiveness and Quantitative Studies to measure the capacity utilization rate in the manufacturing industry for the period 1961-2010. Our empirical analysis aims to show the important variations in the capacity utilization both across industries and, over time, within the manufacturing industry.