Determinants of Capacity Utilization Among Kenyan Manufacturing Firms

Abstract

The growth in the manufacturing sector is a very important propelling force in the economic growth of any nation because manufacturing enterprises have strong forward and backward linkages with other sectors of the economy. This therefore calls for the need to have faster rates of growth in output and employment. This can not be achieved if the installed plant capacity is not fully utilized. However, it is generally known that there is widespread underutilization of capacity utilization among the Kenyan manufacturing sector. The major aims for the study were to identify the major factors which explain capacity utilization in the manufacturing sector and determine the effects they have on capacity utilization. This study tries also to suggest measures that will ensure fuller rate of capacity utilization and consequently accelerate the growth of the manufacturing sector. Major findings from the study are that: (i) Capital stock, firm performance and input constraints all have significant negative influence on capacity utilization; (ii) Size of firms given by the number of employees a firm has, firm productivity, age of firm and ownership structure have positive influence on capacity utilization though not necessary significant. In conclusion, empirical validated policies are indispensable for the fuller utilization of capacity for the sector to achieve sustainable growth. Broad based policies that encourage exports, revitalizes agricultural sector, encourages privatization on public enterprises, enhances governance and improves general macro economic stability are needed.