Towards a New Capital Formation Series for Machinery in South African Agriculture

Abstract

ABSTRACTData limitations lead to the use of assumptions that compromise studies on the measurement of capital in the national accounts and its impact on productivity analysis in South Africa. In the estimation of physical capital such as machinery and implements, a possible approach is to use the ratio of the value of tractor sales to overall expenditure to impute overall machinery sales. The use of a constant ratio over an extended period results in increasingly incorrect estimates and fails to reveal the changing nature of mechanisation. In this article, the problems with such an approach are highlighted through an analysis of the historic share of tractor sales to overall machinery sales in South Africa. This article establishes that the current methods have led to underestimation in the overall value of machinery and implements sales in South Africa by approximately a billion rand per annum for recent years. An alternative method is suggested and the implications of a new capital formation series are discussed.