This paper outlines the implications of adjusting productivity statistics for a variable rate of capacity utilisation of capital.
Capacity utilisation data from the New Zealand Institute of Economic Research shows that capacity utilisation is not constant over time. Capacity utilisation adjustment leads to marginally lower capital input growth and higher multifactor productivity (MFP) growth at the measured sector level.
The paper concludes that capacity utilisation adjustment has minimal impact on long-term growth, leading to marginally lower capital input growth and higher MFP growth at the measured sector level. In the short term, the effects of adjusting productivity statistics for variable capacity utilisation are more significant, leading to less volatile MFP estimates.