Does capacity utilization crowd‐out research activity? Cross‐national evidence from firm‐level data

Abstract

AbstractFocusing on a relatively under‐researched aspect, this paper examines the impact of capacity utilization by firms on their propensities to engage in research and development (R&D). Capacity utilization is related to a firm's current operations, while R&D is forward‐looking, related to the generation of new products and processes. Using a simple theoretical model to set up the hypothesis that greater capacity utilization lowers the incentives of firms to engage in research, our empirical research, based on survey data from thousands of firms across scores of nations, supports this hypothesis. Other results point to the importance of firm characteristics, as well as the perceptions about corruption and the informal sector. Some implications for policy are discussed.