Measuring Capital - OECD Manual 2009

Second edition

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Capital - in particular of the physical sort - plays several roles in economic life: it constitutes wealth and it it provides services in production processes. Capital is invested, disinvested and it depreciates and becomes obsolescent and there is a question how to measure all these dimensions of capital in industry and national accounts. This revised Capital Manual is a comprehensive guide to the approaches toward capital measurement. It gives statisticians, researchers and analysts practical advice while providing theoretical background and an overview of the relevant literature. The manual comes in three parts - a first part with a non-technical description with the main concepts and steps involved in measuring capital; a second part directed at implementation and a third part outlining theory and a more complete mathematical formulation of the measurement process.

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User Costs

In a production process, labour, capital and intermediate inputs are combined to produce output. Conceptually, there are many facets of capital input that bear a direct analogy to labour input. Capital goods are seen as carriers of capital services that constitute the actual input in the production process. For purposes of productivity and production analysis, then, capital services constitute the appropriate measure of capital input. At present, however, the national accounts provide no measure of the value, price or volume of capital services.

Consumption of fixed capital or depreciation is sometimes thought of as reflecting the full costs of using fixed assets. That this is a misconception can easily be shown by taking the case where fixed assets are not owned by a firm but rented from another unit who owns the capital good. The owner’s price charged for the rental will comprise not only depreciation (consumption of fixed capital), but other elements as well, for example an item reflecting financing costs of capital, lest the asset owner would make a permanent loss from renting out the asset.

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