UN-ECE/Eurostat/OECD Meeting on National Accounts
April 2008 Geneva
Measuring Capital Services
OECD
Agenda item 2a
Invited paper 4
Contents
• Background
• Basic idea: what are capital services?
• Purpose of capital services measures
Background
• 2003: United Nations Statistical Commission (UNSC) calls for update of the 1993 System of National Accounts
• Canberra II Group dealt with issues concerning the measurement of non-financial assets
• This included also capital services measurement in the national accounts
• Result: capital services are now recognised in the revised SNA but implementation is up to countries
What are capital services? (1)
• Anyone who is familiar with the user cost approach towards owner-occupied housing already knows what capital services are
• But some more explanation may be helpful
• There are two aspects to capital:– It is a storage of wealth (wealth aspect)– It has a role in the production of goods and
services (production aspect)
What are capital services? (2)• Wealth aspect
– Captures the market value of capital goods valuation of the stock at market prices
– The appropriate entry for balance sheets
– Corresponds to the net capital stock in the SNA93
• Production aspect
– Captures the flow of productive services from capital into production
– The appropriate variable for productivity measurement
– Requires a different stock measure – the productive stock
What are capital services? (3)• Volume of capital services
– Assumed to be proportional to the productive stock
– Then, volume growth of productive stock = volume growth rate of capital services
• Productive stock
– Takes into account efficiency loss of older asset an age-efficiency profile is applied
• Wealth stock
– Takes into account total value loss of older asset an age-price profile is applied
What are capital services? (4)
• Price of capital services
=User costs per unit of productive stock
– Main elements of user costs:• Real rate of return (r)
• Rate of CFC (d)
• Real holding gains/losses (left out in simplified approach)
What are capital services? (5)
• Total value of capital services– Price of K-services * Productive stock – Simplest form: (r+d)p*K– This corresponds to the user cost approach
towards owner occupied housing (ignoring intermediate inputs)
Purpose of capital services measures (1)
• Normally, no link between value-added and capital, except for CFC as the measure that brings us from GOS to NOS
• Capital services measures establish the link between capital input and value-added:
• Total value of capital services can be equated with GOS (plus the capital part of mixed income)
Purpose of capital services measures (2)
• Consequence: the income side of the account can be de-composed into a price and into a volume component– Price component: wages and prices of capital
services (=user costs)– Volume component: numbers employed and volume
of capital services
• With volume measures for labour and capital, combined measures of volume inputs can be computed
• Volume output/volume input = MFP
Capital measures in SNA93
Time series of GFCF by type of asset all
expressed at same mid-year prices
Retirement profile
Net capital stock
Balance sheets
Net domestic product
Consumption of
fixed capital
Age-price or depreciation
profile
Integrated system of capital measures
Age-efficiency
profile
Time series of GFCF by type
of asset all expressed at
same mid-year prices
rate of return
Retirement profile
Age-price profile
Deprieciation profile
Productive capital
stock/capital services by
asset
Net capital stock
Consumption of fixed capital
Balance sheets
Total capital services
User costs of capital
Net domestic product
Conclusions
• Capital services measures add significant analytical value to national accounts – price/volume split of income side and productivity measurement
• Capital services, net capital stock, CFC and GFCF should form a consistent and integrated set
• Implementation requires extra effort but much of the empirical requirements are also needed for good quality measures of CFC and net stocks
More details…
• Forthcoming chapter in revised SNA
• OECD Capital Manual– Draft version on OECD website– Final version available by June 2008
• Contact: [email protected]