Fixed capital stock depreciation in developing countries: Some evidence from firm level data

Abstract

Previous growth accounting studies suggest severe capital underutilisation and mismeasurement of the stocks of capital in some developing countries. Using the firm level data sets from the World Bank surveys, this paper estimates the economic depreciation rates of fixed capital stocks in the manufacturing industries of seven developing countries. The findings indicate that the stocks of fixed capital may depreciate at higher rates in these countries, as compared with the normal rates usually assumed for advanced industrial countries. This study also discusses the economic and social forces that may influence the incentive to maintain capital appropriately and the implications of high depreciation for the total factor productivity (TFP) growth estimates and volatility of capital accumulation.