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An Empirical Assessment of Global Capital Productivity

Author

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  • Knolle, Julia
  • Lehmann, Kai

Abstract

Does the world experience a secular decline in capital productivity? Due to the long-run downward trend in interest rates, some economists do think so. However, this reasoning equates capital productivity with interest, which is a critical assumption. This paper presents a new proxy that can be used to estimate capital productivity. It is based on weighted average cost of capital (WACC), which are employed by firms in their investment appraisals as a benchmark return. The paper uses an original WACC data set for many OECD countries and for the time period 2000-2015. Data are adjusted for tax distortions and expected inflation. The principle finding is that the data do not indicate a long-run decline in capital productivity.

Suggested Citation

  • Knolle, Julia & Lehmann, Kai, 2016. "An Empirical Assessment of Global Capital Productivity," Hannover Economic Papers (HEP) dp-574, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  • Handle: RePEc:han:dpaper:dp-574
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    File URL: http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-574.pdf
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    References listed on IDEAS

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    1. Eric T. Swanson & John C. Williams, 2014. "Measuring the Effect of the Zero Lower Bound on Medium- and Longer-Term Interest Rates," American Economic Review, American Economic Association, vol. 104(10), pages 3154-3185, October.
    2. Stefan Homburg, 2014. "Overaccumulation, Public Debt and the Importance of Land," German Economic Review, Verein für Socialpolitik, vol. 15(4), pages 411-435, November.
    3. Stefan Homburg, 2017. "Understanding Benign Liquidity Traps: The Case of Japan," German Economic Review, Verein für Socialpolitik, vol. 18(3), pages 267-282, August.
    4. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    5. Kookshin Ahn, 2003. "Are East Asian Economies Dynamically Efficient?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 28(1), pages 101-110, June.
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    Cited by:

    1. repec:spr:wirtsc:v:97:y:2017:i:4:d:10.1007_s10273-017-2132-3 is not listed on IDEAS
    2. Stefan Homburg & Julia Knolle, 2017. "Das Rätsel der Niedrigzinsphase
      [The Conundrum of Low Interest Rates]
      ," Wirtschaftsdienst, Springer;German National Library of Economics, vol. 97(4), pages 290-293, April.
    3. Homburg, Stefan, 2017. "A Study in Monetary Macroeconomics," OUP Catalogue, Oxford University Press, number 9780198807537.

    More about this item

    Keywords

    Capital productivity; cost of capital; interest-growth-differential; WACC.;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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