An Analysis of Capital Input Adjustments through Capacity Utilization in Korea

This study utilizes the value-added growth accounting methodology proposed by Fernald (2014) to estimate capital input adjusted for capacity utilization, offering a more precise analysis of changes in capital use within both the manufacturing and non-manufacturing sectors. Existing studies often apply average utilization rates for the aggregated manufacturing sector, failing to reflect industry-specific characteristics. To address this, our research applies industry-specific capacity utilization indices for manufacturing and electricity consumption indices for non-manufacturing, following previous methodologies by Pyo and Song (2014), the Korea Productivity Center (2021), Pyo and Lee (2024), and Pyo et al. (2024). This approach enables clearer identification of varying capacity utilization levels in industries such as the computer, electronic, and optical equipment manufacturing, which includes the semiconductor industry, and the electrical equipment manufacturing sector, which includes secondary battery production. The results show that capital input estimation using industry-specific utilization metrics is more meaningful than using average utilization rates. This refined method contributes to more accurate total factor productivity (TFP) measurement and economic growth analysis, offering valuable implications for future policy design and industry-level competitiveness assessment. JEL Classification: C6 , E2 , O3