Recent Equipment Investment Trends: Focusing on the Manufacturing Capacity Utilization Rate

9 Pages Posted: 15 Apr 2017

See all articles by Daehee Jeong

Daehee Jeong

Korea Development Institute (KDI)

Duksang Cho

Korea Development Institute (KDI)

Date Written: April 12, 2017

Abstract

링크를 클릭하시면, 이 보고서의 한국어 버전을 보실 수 있습니다: http://ssrn.com/abstract=2951562

■ Equipment investment showed improvements thanks to the recent boom in a few sectors such as semiconductors. But, the average capacity utilization rate of manufacturing sectors stagnated at a low level, limiting additional growth momentum in equipment investment.

○ The decline in the utilization rate since the global financial crisis has been mainly driven by the severe contraction in a few sectors with excess capacity from delayed restructuring.

Analysis using sectoral level micro data suggests that a low capacity utilization rate will likely to drag down future improvements in equipment investment.

○ Meanwhile, the manufacturing average capacity utilization rate was found to respond sensitively to improved projections for demand conditions. Accordingly, the recent rapid growth in equipment investment may come to an abrupt end unless it is supported by an increase in the manufacturing average capacity utilization rate through improvements in demand conditions.

■ Therefore, efforts to eliminate obstacles to equipment investment are needed. In this regard, enhancing the dynamism of the Korean economy by revitalizing firm’s entry and exit is desirable to be considered.

○ Reducing excess capacity through restructuring will not only help boost low capacity utilization rates-in certain sectors-but also positively affect, in the mid- to- long-run, the market entry and growth of firms capable of creating new demand.

Meanwhile, policies designed for short-term increases in exports and household income are not enough to improve future demand conditions, and hence they are not recommended as a fundamental means to restore investment.

Suggested Citation

Jeong, Daehee and Cho, Duksang, Recent Equipment Investment Trends: Focusing on the Manufacturing Capacity Utilization Rate (April 12, 2017). KDI Feature Article 2017 1st, eng., Available at SSRN: https://ssrn.com/abstract=2952154

Daehee Jeong (Contact Author)

Korea Development Institute (KDI) ( email )

263 Namsejong-ro
Sejong-si 30149
Korea, Republic of (South Korea)

Duksang Cho

Korea Development Institute (KDI) ( email )

263 Namsejong-ro
Sejong-si 30149
Korea, Republic of (South Korea)
+82-44-550-4046 (Phone)
+82-44-550-4088 (Fax)

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