Comparing Approaches to Valuing Sectoral Net Investments
21 Pages Posted: 22 May 2009 Last revised: 27 Apr 2013
Date Written: September 6, 2012
Abstract
In the literature of comprehensive national accounts, national net investments are used to indicate dynamic welfare improvement in an economy. A well-known approach associates national net investments with the shadow value of change in stock of capital assets in an economy. Following this capital stock approach, sectoral net investments can be defined as the shadow value of change in stock of capital assets owned by a sector in an economy. An alternative approach is based on future commodity flows to a sector. This commodity flow approach associates sectoral net investments with the present value of changes in future commodity flows to a sector. In the present paper, I compare these two approaches and prove that they coincide with each other only if the future commodity flows to the sector can be attributed to current stock of capital assets in the sector alone. In empirical studies, commodity flow approach can be a better alternative if the purpose is to estimate the contributions to national net investments of a recipient of future cash flows.
Keywords: comprehensive national accounting, genuine saving, income, non-renewable resource, sectoral net investments, sectoral wealth
JEL Classification: C43, D60, Q01, Q56
Suggested Citation: Suggested Citation