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A Short‐Cut Method of Estimating Capital Stocks: When Can It be Used and How Well Does It Work?
Author(s) -
Blades Derek
Publication year - 2015
Publication title -
review of income and wealth
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.024
H-Index - 57
eISSN - 1475-4991
pISSN - 0034-6586
DOI - 10.1111/roiw.12171
Subject(s) - economics , stock (firearms) , depreciation (economics) , econometrics , perpetual inventory , net capital rule , publication , capital formation , consumption of fixed capital , fixed capital , gross fixed capital formation , cost of capital , capital (architecture) , monetary economics , macroeconomics , financial capital , capital flows , gross domestic product , human capital , business , microeconomics , inventory management , operations management , inventory theory , advertising , history , archaeology , engineering , profit (economics) , mechanical engineering , economic growth
Relatively few countries currently publish estimates of capital stocks because of the difficulty of applying the Perpetual Inventory Method. A short‐cut method which we term the Steady Growth Model ( SGM ) can produce plausible capital stock estimates provided certain conditions are met. Starting with a database covering 146 countries we conclude that the SGM can legitimately be used to calculate capital stocks for 53 of them. The 53 include equal numbers of high‐income and low‐income countries. The SGM requires only data on gross fixed capital formation for the base year, information about past growth rates of real GFCF , and assumptions about rates of depreciation. Despite its apparent simplicity, we show that our SGM stock estimates compare well with official stock estimates generated by the PIM . Other tests on capital–output ratios and capital‐stocks per head confirm the plausibility of stock estimates generated by SGM .