Productive capacity is the maximum possible output of an economy. According to the United Nations Conference on Trade and Development (UNCTAD), no agreed-upon definition of maximum output exists. UNCTAD itself proposes: "the productive resources, entrepreneurial capabilities and production linkages which together determine the capacity of a country to produce goods and services." The term may also be applied to individual resources or assets; for instance the productive capacity of an area of farmland.

Definition in more depth

Productive capacity has a lot in common with a production possibility frontier (PPF) that is an answer to the question what the maximum production capacity of a certain economy is which means using as many economy’s resources to make the output as possible. In a standard PPF graph, two types of goods’ quantities are set. PPF expresses all the possibilities of a combination of these goods that can be maximally produced by a certain economy due to its scarce resources and creates a downward-sloping line. When a certain body reaches any point under the line, the body’s production is under productive potential. When the body’s combination of the two goods included in the graph reaches a point which stands on the PPF line, the body is at its maximum productivity, which creates the highest efficiency on the body. Any other situation cannot be reached because the line gives a limit to the goods’ production that is not possible to be exceeded. In the case of a productive capacity graph, on the horizontal line are defined capital goods and on the vertical line, consumer goods are stated. The functioning of the productive capacity graph is the same as for the above-mentioned PPF graph. The only possible outputs are those that lie under and on the PPF line. If an economy suffers from an under-production, thus an output point can be located under the productive potential, the economy loses its maximum potential output and spare capacity is created. That equals to the fact that the economy has a lower GDP than is possible. An economy employing all the economically active people and all the resources efficiently produces on its PPF line, therefore has the biggest GDP as possible.

Strengthening productive capacity

The process of heightening productive capacity can be related to many reasons, such as:

Productive capacity of the world’s Least Developed Countries (LDC)

All of the above-mentioned statements that could be applied to raise productive capacity apply to LDC as well. Investment in human or financial capital, providing better education, innovations or raising entrepreneurs – all of these have to be implemented especially in these countries. Although, because of its specific starting position, there are several additional recommendations to succeed in the productive capacity heightening process: