The Sensitivity Of Capital Services Index on Construction Price Indices

Borut Kodric and Lea Bregar

Economic Research-Ekonomska Istraživanja, 2012, vol. 25, issue 3, 666-689

Abstract: Measuring capital is a challenging task due to numerous conceptual dilemmas and practical problems. In this paper, we focus on the production side of capital measurement where the reliable measurement of capital services is of vital importance for derived production measures, such as multifactor productivity. While there has been a lot of debate regarding the choice of expected rate of return, the choice of expected capital gain, and the treatment of taxes in the user cost estimation when estimating capital, not much attention has been paid to the issues of appropriate price indices of assets. The use of inappropriate asset price indices results in a biased estimate of capital services index and, consequently, influences the estimate of the impact of capital on economic growth. The purpose of this paper is to develop a framework of the impact of asset price indices on capital services and to test the impact by the sensitivity analysis. The sensitivity analysis was carried out for the impact of construction prices on capital service index for the Slovenian manufacturing for the period 1995-2008.

Date: 2012
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DOI: 10.1080/1331677X.2012.11517528

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