Skip to main content
SpringerLink
Log in

Appreciating depreciation: physical capital depreciation in a developing country

  • Published:
Empirical Economics Aims and scope Submit manuscript

Abstract

Little is known about the nature of physical capital in the less-developed countries. This article addresses the lack of empirical study related to depreciation rates, which are a neglected but important ingredient of both micro and macro models and empirical analyses. Based on rich establishment-level survey data, and using a straightforward econometric approach, I estimate depreciation rates of physical capital invested in manufacturing enterprises in Indonesia. I estimate the depreciation rate to be between 8 and 14 %. These numbers compare roughly to published estimates for the U.S. I then investigate hypotheses related to heterogeneity of depreciation rates across different types of firms. Finally, I test the hypothesis that financially constrained firms use less durable investment goods.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Bai C-E, Hsieh C-T, Qian Y (2006) The return to capital in China. Brook Pap Econ Act 37(2): 61–88

    Article  Google Scholar 

  • Barro R, Sala-i-Martin X (1995) Economic growth. McGraw Hill, New York

    Google Scholar 

  • Benhabib J, Spiegel M (1994) The role of human capital in economic development: evidence from aggregate cross-country data. J Monet Econ 34: 143–173

    Article  Google Scholar 

  • Bigsten A, Collier P, Dercon S, Fafchamps M, Gauthier B, Gunning J, Oduro A, Oostendorp R, Pattilo C, Söderbom M, Teal F, Zeufack A (2002) Adjustment costs and irreversibility as determinants of investment: evidence from African manufacturing. Manuscript

  • Bond S, Elston J, Mairesse J, Mulkay B (2003) Financial factors and investment in Belgium, France, Germany and the United Kingdom. A comparison using company panel data. Rev Econ Stat 85(1): 153–165

    Article  Google Scholar 

  • Coen R (1975) Investment behavior, the measurement of depreciation, and tax policy. Am Econ Rev 65(1): 59–74

    Google Scholar 

  • de Mel S, McKenzie D, Woodruff C (2008) Returns to capital in microenterprises: evidence from a field experiment. Q J Econ 123(4): 1329–1372

    Article  Google Scholar 

  • Fraumeni B (1997) The measurement of depreciation in the U.S. national income and product accounts. Survey of Current Business, pp 7–23

  • Hauk W, Wacziarg R (2004) A Monte Carlo study of growth regressions. NBER Technical Working Paper 296

  • Hsieh C-T, Klenow PJ (2009) Misallocation and manufacturing TFP in China and India. Q J Econ 124(4): 1403–1448

    Article  Google Scholar 

  • Hulten C, Wykoff F (1981) The estimation of economic depreciation using vintage asset prices. J Econ 15: 367–396

    Google Scholar 

  • Islam N (1998) Growth empirics: a panel data approach—a reply. Q J Econ 113(1): 325–329

    Article  Google Scholar 

  • Jorgenson D (1974) The economic theory of replacement and depreciation. In: Sellekaerts W (ed) Econometrics and economic theory. Essays in honor of Jan Tinbergen. White Plains, New York

    Google Scholar 

  • King R, Levine R (1994) Capital fundamentalism, economic development, and economic growth. Carnegie-Rochester Conf Public Policy 40: 259–292

    Article  Google Scholar 

  • Kumar S, Managi S (2010) Productivity and convergence in India: state level analysis. Manuscript. University of Delhi, Delhi

    Google Scholar 

  • Kydland F, Prescott EC (1982) Time to build and aggregate fluctuations. Econometrica 50(6): 1345–1370

    Article  Google Scholar 

  • Mankiw G, Romer D, Weil D (1992) A contribution to the empirics of economic growth. Q J Econ 107(2): 407–437

    Article  Google Scholar 

  • McKenzie D, Woodruff C (2008) Experimental evidence on returns to capital and access to finance in Mexico. World Bank Econ Rev 22: 457–482

    Article  Google Scholar 

  • OECD: (2000) National accounts for China. Sources and methods. Organisation for Economic Co-operation and Development, Paris

    Book  Google Scholar 

  • Pritchett L (2000) The tyranny of concepts: CUDIE (cumulated, depreciated, investment effort) is not capital. J Econ Growth 5(4): 361–384

    Article  Google Scholar 

  • Raychaudhuri B (1996) Measurement of capital stock in Indian industries. Econ Policitical Wkly 31(21): M2–M6

    Google Scholar 

  • Summers R, Heston A (1991) The penn world table (Mark 5): an expanded set of international comparisons, 1950–1988. Q J Econ 106(2): 327–368

    Article  Google Scholar 

  • Udry C, Anagol S (2006) The return to capital in Ghana. Am Econ Rev Pap Proc 96(2): 388–393

    Article  Google Scholar 

  • Wang Y, Yao Y (2003) Sources of China’s economic growth 1952–1999: incorporating human capital accumulation. China Econ Rev 14: 32–52

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Goethe University Frankfurt, Grüneburgplatz 1, 60323, Frankfurt am Main, Germany

    Matthias Schündeln

Authors
  1. Matthias Schündeln
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Matthias Schündeln.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Schündeln, M. Appreciating depreciation: physical capital depreciation in a developing country. Empir Econ 44, 1277–1290 (2013). https://doi.org/10.1007/s00181-012-0592-2

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00181-012-0592-2

Keywords

JEL Classification

Search

Navigation