The Generalized Malmquist index and capacity utilization change: an application to the Italian manufacturing, 1989-1994

Several indices of plant capacity utilization based on the concept of best practice frontier have been proposed in the literature (Fare et al. 1992; De Borger and Kerstens, 1998). This paper suggests an alternative measure of capacity utilization change based on Generalized Malmquist index, proposed by Grifell-Tatje' and Lovell in 1998. The advantage of this specification is that it allows the measurement of productivity growth ignoring the nature of scale economies. Afterwards, this index is used to measure capacity change of a panel of Italian firms over the period 1989-94 using Data Envelopment Analysis and then its abilities of explaining the short-run movements of output are assessed.