ABSTRACT
This chapter presents theoretical underpinnings and empirical evidence of determinants of capacity realization. It explains an analytical model is developed which draws heavily on theoretical and empirical studies in the Industrial Organization literature. The chapter analyzes the influence of a number of variables on Productive Capacity Realization across firms within and between years. Theoretical works in Industrial Organization literature offer several other views on the differences in observed capacity realization of firms. Firms may build excess capacity for both strategic and non-strategic reasons. The impact of firm-specific characteristics, such as age and size of firms, market structure and policy related variables, such as concentration and effective rate of protection on a firm’s performance in terms of profitability have been widely tested in industrial organization literature. In Bangladesh, previous industrial policies encouraged firms to increase output to fulfil the planned targets without emphasizing efficiency and higher capacity realization in production.
