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THE SENSITIVITY OF CAPITAL SERVICES MEASUREMENT: MEASURE ALL ASSETS AND THE COST OF CAPITAL

Authors


  • Note: This paper is written as part of the EU KLEMS project on “Growth and Productivity in the European Union.” This project is funded by the European Commission, Research Directorate General as part of the 6th Framework Programme, Priority 8, “Policy Support and Anticipating Scientific and Technological Needs.” The author would like to thank two anonymous referees for useful comments, and Steve Rosenthal (BLS) for both detailed BLS capital data and useful comments. Any remaining errors are my own.

Robert Inklaar, Groningen Growth and Development Centre, University of Groningen, PO Box 800, 9700 AV Groningen, The Netherlands (R.C.Inklaar@rug.nl).

Abstract

The measurement of capital inputs is still a contentious issue: many choices have to be made that have potentially large effects on the resulting capital input series. This paper compares a large number of methodological choices and their impact on U.S. capital services at the industry and aggregate level. The results show that the set of capital assets covered and the choice for the rate of return matter substantially, while other choices are less important. I argue that land, inventories, and intangible capital should be included and that for pragmatic reasons, an external cost of capital is preferable to an internal rate of return because of its transparency and robustness to measurement error.

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