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Appreciating depreciation: physical capital depreciation in a developing country

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  • Matthias Schündeln

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. Copyright Springer-Verlag 2013

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  • Matthias Schündeln, 2013. "Appreciating depreciation: physical capital depreciation in a developing country," Empirical Economics, Springer, vol. 44(3), pages 1277-1290, June.
  • Handle: RePEc:spr:empeco:v:44:y:2013:i:3:p:1277-1290
    DOI: 10.1007/s00181-012-0592-2
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    1. Santanu Chatterjee & Mark C. Kelly & Stephen J. Turnovsky, 2022. "Foreign aid, public investment, and the informal economy," Economic Inquiry, Western Economic Association International, vol. 60(1), pages 174-201, January.

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    More about this item

    Keywords

    Depreciation rate; Capital stock; Investment; Manufacturing; Indonesia; O14; D92; E22; L6;
    All these keywords.

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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