Structural constraints and excess capacity : An international comparison of manufacturing firms

This is the peer reviewed version of the following article: ‘Structural constraints and excess capacity: An international comparison of manufacturing firms’, which has been published in final form at Wiley Online Library 10.1111/dpr.12168 . Under embargo. Embargo end date: 22 July 2018. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.Excess capacity results in real and opportunity costs as well as lower factor productivity. Conventionally, variation in capacity utilisation rates has been explained with reference to the business cycles and market imperfections. In this article, we show that these two factors do not always fully explain the causes of idle capacity. Our ndings suggest that manufacturing rms in low-income countries tend to have lower capacity utilisation rates than those in middle- and upper-middle-income groups. To explain this peculiarity, it is proposed in this article that the level of excess capacity partly depends on supply-side conditions and institutional variables. The ndings provide strong support for this view and suggest that there are gains to be made in the manufacturing industries of the lower-income countries through improvements in the structural conditions.Peer reviewedFinal Accepted Versio