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This talk. The origins and basic ideasCapital services and the national accounts
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1. WORLD KLEMS CONFERENCEAugust 2010 Harvard University KLEMS Methodology Basic Building Blocks: Measuring Capital
Paul Schreyer, OECD
2. This talk
The origins and basic ideas
Capital services and the national accounts – the debate
Looking ahead in capital measurement
3. The origins Flow of services and user costs discussed by Léon Walras (1874) and Böhm-Bahwerk (1891)
Model of capital as a factor of production introduced by Dale Jorgenson (1963) Capital Theory and Investment Behaviour
Application to growth accounting by Jorgenson and Griliches (1967) The Explanation of Productivity Change
Large body of literature followed
4. The basic idea – 2 dimensions to capital Source of flows of services into production (the ‘K’ in the production function) ? Production aspect
Captured by recognizing that different types of assets have different marginal productivities
These are captured by asset-specific prices of capital services: user costs
User cost weights are key in aggregating across different types of capital (akin to labour input)
Component of wealth ? Wealth aspect
5. The basic idea (2) Traditionally, only wealth aspect recognised in NA, via balance sheets
Production aspect, if recognised at all, only in a partial and inaccurate way: depreciation as measure of capital input into production
Yet, both aspects can be integrated into a system of accounts in a conceptually correct and consistent way
7. The basic idea (3) Consequence:
Symmetric treatment of labour and capital in the production (and generation of income) accounts
Both the value of labour income and the value of capital income can be broken down into a price and volume component ? vital for productivity computations
SNA 59, SNA 68 and SNA 93 had asymmetric treatment of labour and capital
8. Capital services and the national accounts – the debate First discussions in the context of the ‘Canberra I Group on Capital Measurement’ but notion of capital services was not adopted
More discussions in Canberra II Group (2005-2008) and recognition of capital as an input in production measure put forward as issue in the Revision of SNA 93 ? SNA 2008
5 issues in the debate
9. Issue #1: “Capital services measures mix up the real and the financial side of the economy” Misunderstanding about the role of rates of return and holding gains and losses in user costs
Absent market transactions, they form part of an estimate of an imputed transaction but not a recognition of capital gains as production
10. Issue #2: “Government production is not for profit – hence no net return on capital should be imputed for government assets ” Neglects the fact that government has financing costs or opportunity costs
But SNA 2008 maintains that value of capital services for government asset = depreciation
Ironically, net return is needed to identify non-market producers
11. Issue #3: “There is no unique method to estimate user costs – this will impair international comparability” No misunderstanding here but there are many instances in national accounting when different methods can be used and are used
Real questions:
How much does it matter (N.Oulton’s paper)
Is not recognising user costs a better option?
12. Issue #4: “Already too many imputations in the accounts – no need to add another one” Fair point
Judgement about optimal level of imputations varies between national accountants and analysts
13. Issue #5: “Capital service measures imply a value judgement by the statistician on functional income distribution” Capital services measures are indeed conceived with regard to a particular theoretical model (neoclassical theory)
But issue is to be transparent about this. There is (and probably should be) no such thing as a theory-free national accounting
14. Do capital services measures evolve differently from capital stocks? Yes – example Australia
15. Looking ahead in capital measurement Linking industry and total economy accounts
Capitalisation of intellectual property products beyond R&D: the debate on intangibles
Capacity and capital utilisation
Natural and environmental assets
Human capital
16. For more, and for references to the literature see...
17. Thank you!
Paul.Schreyer@oecd.org
OECD Productivity data
www.oecd.org/statistics/productivity/