Sturm, Kuper, and de Haan (1998, p. 382) draw attention to the problem that “most authors employ data in their analysis which are generally chosen on the ground of their availability, without analyzing whether their conclusions are sensitive not only to the concept of the public capital stock (narrow versus broad definition), but also to the way the capital stock has been constructed.”
This database includes not only investment data but also a large set of other macroeconomic variables. In addition to investment, real gross domestic product (GDPV) and employment (ET) are retrieved. Most of these data are available via the Internet at: www.sourceoecd.org.
For most of these countries, the data are available for the period 1960–2001. The following OECD countries are not included in the analysis because long investment series are not available: the Czech Republic, Hungary, the Republic of Korea, Luxembourg, Mexico, Poland, the Slovak Republic, and Turkey.
In OECD (1997), public entities are referred to as “producers of government services.” This category, in most cases, corresponds to the definition of public activities underlying the investment series from national sources. An important difference, however, is that capital stocks in OECD (1997) were based on classifications of public activities according to the 1968 System of National Accounts, whereas recent national data are based on classifications according to the 1993 System of National Accounts.
All series are expressed in the constant prices of 1995. For countries with a different base year (Australia 1999/2000; Canada, 1997; Iceland, 1990; Norway, 1997; Switzerland, 1990; and the United States, 1996), the series were rebased to 1995.
The terms “depreciation” and “consumption of fixed capital” are used interchangeably in this paper. This is common in economic literature. Note, however, that “depreciation” as used here differs considerably from its use in company accounts, where it is calculated on the basis of historic costs rather than market prices.
An exception to this general rule applies in the case of the United States. The U.S. Bureau of Economic Analysis (BEA) provides investment series starting in 1914. This information is used by chaining the OECD data, which are available for 1960–2001, with the BEA growth rates for 1914–60.
Maddison (1995) estimates gross capital stocks for six OECD countries based on investment series that in some cases start in the 19th century. However, he acknowledges that the assembly of the investment series is a major problem, because historical series for different periods have to be linked and because these series rely on different weighting bases. Also, there are generally breaks in the historical investment series. However, most important for our purpose is that historical series on investment in general do not include a measure of government investment but only measures of private investment. An exception relates to the influential works of Feinstein (for example, 1972), who provides investment series for the public sector in the United Kingdom starting in 1856. However, the definition of the public sector in his studies differs considerably from that underlying the OECD series.
In his estimation of nonresidential capital stocks for six OECD countries, Maddison (1991, pp. 284–92) assumed that the loss in capital stock caused by war damage amounted to 3 percent in the United Kingdom, 8 percent in France, 10 percent in the Netherlands, 16 percent in Germany, and 25.7 percent in Japan. These figures are subject to a large margin of uncertainty, though, and the war damage to productive capacities may well have been lower. For example, Ritschl (2003, p. 414) reports that the industrial capital stock in Germany in 1945 exceeded prewar levels by a third. This capital stock was often composed of multi-purpose machinery and, thus, was available for civil production. Likewise, Giersch, Paqué, and Schmieding (1992, p. 17) and Eichengreen and Ritschl (1998, p. 8) note that war damage to the capital stock in Germany was quite limited.
Maddison (1987, p. 650) reports that between 1950 and 1973, real GDP grew by 9.4 percent a year on average in Japan and by 5.9 percent in Germany, whereas the average annual growth rate was only 3 percent for the United Kingdom and 3.7 percent for the United States.
For example, long-run growth in real GDP was remarkably stable in West Germany, despite the disruptions caused by World War II. Calculations based on historical GDP figures drawn from Ritschl and Spoerer (1997) reveal that real GDP grew by 2.9 percent a year on average between 1938 and 1960 and by 3.1 percent between 1960 and 1990. Of course, real GDP did not grow smoothly in the first subperiod. Real GDP in 1946 was lower than in 1938 by roughly 60 percent. However, real GDP growth over the period 1946–60 was extremely strong, averaging almost 12 percent a year.
Maddison (1987, p. 657) reports that between 1950 and 1973, the private capital stock on average grew in Japan by 9.5 percent a year and in Germany by 7.2 percent. Calculations based on Luetzel (1977, p. 66) show that the total net capital stock in Germany grew by 7.9 percent a year on average between 1950 and 1960. Calculations based on Mitchell (1975) show that net investment in Germany grew by 9.7 percent a year on average between 1950 and 1960.
The fall in capital stocks as a result of wartime disruptions was less pronounced than the fall in output (Maddison, 1982, p. 55), implying that the gap between capital stock levels at the end of World War II and their long-run trend was lower than was the case for output.
This paper assumes that the time profile of the depreciation rates is the same across countries. Official estimates of capital stocks for different countries are, in general, based on different assumptions about depreciation rates. This is appropriate insofar as country-specific factors influence service lives. However, only a few countries have investigated service lives with particular care, among them the United States (OECD, 2001, p. 99). Therefore, it seems preferable to assume identical depreciation rates across countries for the purpose of international comparisons. Such a standardized approach is also adopted by Maddison (1995) and O’Mahony (1996).
National authorities usually estimate the contribution of investment to the net capital stock for a large number of individual assets (BEA, 1999). For most of these assets, national authorities assume constant depreciation rates, except for assets related to information and communication technology (ICT). At the same time, they assume different depreciation rates for different types of assets. As the relative importance of different assets changes with time, so does the average depreciation rate. The latter will increase over time if assets with relatively short asset lives gain in importance. This paper tries to capture this phenomenon by assuming a time-varying aggregate depreciation rate.
Figure 2 shows that the implicit scrapping rate calculated for BEA data sharply accelerated after 1995. To some extent, this probably reflects the growing importance of ICT assets characterized by asset lives that are much shorter than those of other assets. Because the importance of the ICT sector is considerably lower in most other industrial countries than in the United States (OECD, 2002a), we chose a flatter depreciation profile for the years 1995–2001 than that implicit in U.S. data.
A special problem in the estimation of capital stocks relates to German reunification. The OECD investment and GDP series cover only West Germany for the period 1960–90, but they include East Germany from 1991 on. Since there is no information on the magnitude of the East German capital stock at the beginning of 1991, this paper assumes that the ratio of the East German capital stock to the West German capital stock equaled the ratio of East German and West German GDP in 1991 (8 percent). In the estimation, the German capital stock at the beginning of 1991 is thus increased by 8 percent for the three asset types considered. From 1991 on, this additional capital stock depreciates at the same rate as the other assets.
Austria, France, Iceland, Ireland, the Netherlands, Portugal, and Switzerland.
The contribution of the initial capital stock varies between 14.3 percent in the case of Denmark and 3.0 percent in the case of Japan. The differences in contributions across countries are mainly caused by differences in the level of public investment—GDP ratios over the sample period. For instance, the contribution of the initial capital stock is lowest in Japan because the public investment—GDP ratio there was the highest among the considered countries over the period 1960–2001.
In 2000, real GDP per capita amounted to 66.3 percent of the OECD average in Greece, 72.4 percent in Portugal, and 79.5 percent in Spain (OECD, 2002b, p. 339).
The official growth rates provided by the BEA for the period 1914–60 are chained with the OECD investment series available for 1960–2001.
Detailed results are available upon request. These tests are carried out for the growth rates of the series, because unit root tests indicate that the public capital stock series are nonstationary.
See Sturm, Kuper, and de Haan (1998) for a discussion of the three approaches and an overview of empirical studies.
Multicollinearity among the regressors is frequently cited as a problem in the empirical literature estimating production functions and cost functions for individual countries (see the survey by Sturm, Kuper, and de Haan, 1998). An alternative way to deal with this problem is to exploit the cross-sectional dimension of the data and estimate panel data models instead of carrying out individual-country regressions. This is done in the second subsection.
Detailed results are available upon request. We use the so-called augmented Dickey-Fuller test, which is asymptotically valid in the presence of serial correlation in the errors, including two additional lags of the respective variable. The test is first carried out for the variables in levels. In this case, the test equation includes a constant and a linear time trend. If the null hypothesis of a unit root cannot be rejected at the 5 percent significance level, the test is also carried out for the variables in first differences. In this case, the test equation includes a constant. If the null hypothesis of a unit root still cannot be rejected, the test is also carried out for the variables in second differences. Small-sample critical values are derived from MacKinnon (1991).
As the usual inference procedures are inappropriate in the presence of nonspherical disturbances, the t-statistics reported in Tables 4 and 5 are based on the Newey and West (1987) heteroskedasticity and auto-correlation consistent covariance estimator.
These estimates are not reported in Table 4. Detailed results are available upon request. The coefficient of labor input is statistically significant in all cases.
The elasticities of output with respect to private capital and labor input are not reported in the table. All elasticities are significant at the 5 percent level. Detailed results are available upon request.