This study tests the effectiveness of the limited perpetual inventory method, an adjusted version of the perpetual inventory method, which is the most used model to estimate the size of capital stock in an economy.
Although the size of fixed capital stock is an essential statistical figure in an economic analysis, the number is difficult to estimate with a sufficient level of credibility due to the lack of basic data and methodological difficulty. The perpetual inventory method, the most used model for capital stock estimation, was considered impossible to use in the analysis of the Korean economy because of the country’s statistical practices. Considering Korea’s high rate of investment growth, however, there is a possibility of using the method because the country’s consistently rapid growth of investment can quickly correct the initial errors. This paper uses this adjusted model called the “limited perpetual inventory method” to prove that estimation errors converge with the rate of investment growth, and provides simulation results within various ranges of error. It was found that this method produces reliable estimations after a certain period of time. For example, even under the erroneous assumption of the capital coefficient being 300%, the error decreases to as little as 5% after 20 years.
This study is meaningful because it generates reliable estimates of fixed capital stock in Korea, which produces time series data for factor productivity, which in turn enable studies on Korea’s industrial productivity patterns, potential growth rate and other measurements. It is also significant that the method allows the capital stock estimation of countries with investment data ranging over only a short period of time. Countries that have investment data can generate reasonably reliable estimates of their fixed capital stocks.
The study applies the method to GDP data collected since 1953. The error margins greatly diminished from 300% in 1953 to 10% in 1970 and eventually almost to zero in 1980. The estimates of this study are useful for a variety of economic analyses given their consistency with other statistical data because they are calculated only from fixed capital formation data by sector, which is included in the national accounts. But a more detailed estimation cannot be conducted because the national accounts do not provide detailed categorization of investments.
한국의 자본스톡 추계와 방법론에 관한 연구(Methodologies to estimate capital stock in Korea)
|Series Title; No||정책연구시리즈|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Macroeconomics|
|Holding||한국개발연구원; KDI 국제정책대학원|