On Variable Capital Utilization and International Trade Theory
The paper makes two points as to how standard international trade theory is modified when an endogenous degree of capital utilization is introduced. The first point is that, if capital utilization during a period is less than full because of an exogenous time-dependent variation in productivity within the period, there is no modification of the standard theory. In particular, there is no need to adjust capital-intensity estimates according to the degree of capital utilization. This is in contrast to what has been argued in the literature. The other point is that, if capital utilization is less than full because of higher wages during part of the period, the night of a day and night, say, the required modification of trade theory is that of introducing several kinds of labor and endogenous labor supply, or, equivalently, of introducing nontraded goods.
Published: Svensson, Lars E.O. "On Variable Capital Utilization and International Trade Theory." Economics Letters, Vol. 11, No. 4, (1983), pp. 377-384.