Institute for Development Studies, University of Nairobi

This paper is a summary of the main conclusions of the author's PhD. thesis which has...title. Based on a fourteen-month study of Kenyan manufacturing, the basic question of the thesis is: why should rational entrepreneurs capital which, they plan to use for less than the maximum number of hours per week. Two behavioural models are examined: the shift differential model, in which it is assumed that here are extra costs associated with operating outside normal daytime working hours to be weighed off against the savings in capital cost, gained by using capital more hours; and the minimim size of plant model, which assumes that one cannot buy less than a certain amount of capital, and because of limits on the demand for output, the firm's chosen output is less than the output of the capital when used the maximum number of hours. The major conclusion learnt in Kenyan utilisation rates and therefore the ratios of output and labour to capita stock are sensitive to the factor-price ratio even in the case where coefficients are fixed ex ante and ex post. In the case of the minimum siae of plant model, the most important reason for market limitation is trade policy which favours import substitutes and discourages exports.