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Reasons for Idle Capital : The Case of Bangladesh Manufacturing

Rizwanul Islam

 

Abstract

This paper makes an attempt to understand the causes of low capital utilization in the manufacturing industries of Bangladesh. After providing a short summary of the theories which have been advanced to explain the idleness of capital, the empirical implications of a major theoretical work by Marris is brought out in the form of some estimating equations. Of the variables included in these equations only firm size appears to have a significant impact on utilization in the case of Bangladesh. This led to a search for alternative explanations of the phenomenon of low capital utilization. Supply bottlenecks created by the shortage of key inputs like raw materials and spare parts (especially imported ones), skilled manpower, etc. are found to be quite important. The availability of raw materials and spare parts (both domestic and imported) explain nearly 77 per cent of the variation in capital utilization. It is argued that the policy of import licensing, project-bias of foreign aid, overvaluation of the currency giving rise to the practice of overinvoicing have encouraged the creation of additional idle capacity. Finally, the evidence of any relationship between utilization and the use to which the product of a particular industry is put is also weak.


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