Economic and statistical measurement of physical capital: From theory to practice

Abstract

The standard measurements of capital and depreciation are statistical measures based on assumptions about the average service life of capital goods, which are accumulated according to the perpetual inventory method. The purpose of this paper is to obtain a true economic measure of capital stock according to the prescriptions of the neoclassical theory. In this way, we develop an alternative method based on the equations that solve the dynamic optimization problem of the firm, yielding an economic estimation based on indicators of profitability, such as the distributed profits and the Tobin's q ratio. Thus, this method enables us to endogenously calculate the variables' rate of depreciation and capital stock. We apply this procedure to the Spanish economy, getting the series of an economic measure of depreciation and the economic value of capital stock. Our results show an economic depreciation rate that fluctuates around the statistical rate. Moreover, we get two time profiles for the economic and statistical capital stocks that differ significantly from each other.