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Ex Post Versus Ex Ante Measures Of The User Cost Of Capital

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  • Nicholas Oulton

Abstract

Should we use ex post or ex ante measures of user costs to calculate the contribution of capital in a growth accounting exercise? The answer, based on a simple model of temporary equilibrium, is that ex post is better in theory. In practice researchers usually calculate ex post user costs by assuming that the rate of return is equalized across assets. But this is only true if expectations are correct. In general, the ex post rate of return differs between assets, even though ex ante it is the same. I propose a hybrid method. The index of capital services is estimated using ex ante weights; the contribution of capital is the growth of this index multiplied by the ex post income share of capital. I show that this method is theoretically correct if the production function is CES. I compare the ex post, ex ante and hybrid methods using data for 31 U.K. industries from 1970 to 2000. Copyright 2007 The Author; Journal compilation International Association for Research in Income and Wealth 2007.

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Article provided by International Association for Research in Income and Wealth in its journal Review of Income and Wealth.

Volume (Year): 53 (2007)
Issue (Month): 2 (06)
Pages: 295-317

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Handle: RePEc:bla:revinw:v:53:y:2007:i:2:p:295-317

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  1. Christensen, Laurits R & Jorgenson, Dale W, 1969. "The Measurement of U.S. Real Capital Input, 1929-1967," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 15(4), pages 293-320, December.
  2. W. Erwin Diewert, 1980. "Aggregation Problems in the Measurement of Capital," NBER Chapters, in: The Measurement of Capital, pages 433-538 National Bureau of Economic Research, Inc.
  3. Nicholas Oulton & Sylaja Srinivasan, 2003. "Capital stocks, capital services, and depreciation: an integrated framework," Bank of England working papers, Bank of England 192, Bank of England.
  4. Paul Schreyer, 2001. "The OECD Productivity Manual: A Guide to the Measurement of Industry-Level and Aggregate Productivity," International Productivity Monitor, Centre for the Study of Living Standards, Centre for the Study of Living Standards, vol. 2, pages 37-51, Spring.
  5. Paul Schreyer & Pierre-Emmanuel Bignon & Julien Dupont, 2003. "OECD Capital Services Estimates: Methodology and a First Set of Results," OECD Statistics Working Papers 2003/6, OECD Publishing.
  6. Berndt, Ernst R. & Fuss, Melvyn A., 1986. "Productivity measurement with adjustments for variations in capacity utilization and other forms of temporary equilibrium," Journal of Econometrics, Elsevier, Elsevier, vol. 33(1-2), pages 7-29.
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Cited by:
  1. Nicholas Oulton, 2010. "Long Term Implications of the ICT Revolution: Applying the Lessons of Growth Theory and Growth Accounting," CEP Discussion Papers, Centre for Economic Performance, LSE dp1027, Centre for Economic Performance, LSE.
  2. Nicholas Oulton & Ana Rincon-Aznar, 2009. "Rates of return and alternative measures of capital input: 14 countries and 10 branches, 1971-2005," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 28687, London School of Economics and Political Science, LSE Library.
  3. Nicholas Oulton, 2012. "How To Measure Living Standards And Productivity," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 58(3), pages 424-456, 09.
  4. Voskoboynikov, Ilya B. & Timmer, Marcel, 2013. "Is Mining Fuelling Long-run Growth in Russia? Industry Productivity Growth Trends since 1995," GGDC Research Memorandum, Groningen Growth and Development Centre, University of Groningen GD-137, Groningen Growth and Development Centre, University of Groningen.
  5. Dal Borgo, Mariela & Goodridge, Peter & Pesole, Annarosa, 2012. "Productivity and Growth in UK Industries: An Intangible Investment Approach," CAGE Online Working Paper Series, Competitive Advantage in the Global Economy (CAGE) 88, Competitive Advantage in the Global Economy (CAGE).
  6. Jorgenson, D.W. & Timmer, Marcel, 2010. "Structural Change in Advanced Nations: A New Set of Stylised Facts," GGDC Research Memorandum, Groningen Growth and Development Centre, University of Groningen GD-115, Groningen Growth and Development Centre, University of Groningen.
  7. Andrew Street & Padraic Ward, 2009. "NHS input and productivity growth 2003/4 - 2007/8," Working Papers, Centre for Health Economics, University of York 047cherp, Centre for Health Economics, University of York.
  8. Paul Schreyer, 2007. "Old and New Asset Boundaries: A Review Article on Measuring Capital in the New Economy," International Productivity Monitor, Centre for the Study of Living Standards, Centre for the Study of Living Standards, vol. 15, pages 75-80, Fall.
  9. Bert M. Balk, 2007. "Measuring Productivity Change without Neoclassical Assumptions: A Conceptual Analysis," CEPA Working Papers Series WP042007, School of Economics, University of Queensland, Australia.
  10. World Bank, 2013. "Measuring the Real Size of the World Economy : The Framework, Methodology, and Results of the International Comparison Program—ICP," World Bank Publications, The World Bank, number 13329, August.

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