Measuring Capital and Technology: An Expanded Framework

50 Pages Posted: 19 Dec 2004

See all articles by Carol A. Corrado

Carol A. Corrado

The Conference Board; Georgetown University - Center for Business and Public Policy

Daniel E. Sichel

Wellesley College; NBER

Charles R. Hulten

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: August 2004

Abstract

Business outlays on intangible assets are usually expensed in economic and financial accounts. Following Hulten (1979), this paper develops an intertemporal framework for measuring capital in which consumer utility maximization governs the expenditures that are current consumption versus those that are capital investment. This framework suggests that any business outlay that is intended to increase future rather than current consumption should be treated as capital investment. Applying this principle to newly developed estimates of business spending on intangibles, we find that, by about the mid-1990s, business investment in intangible capital was as large as business investment in traditional, tangible capital. Relative to official measures, our framework portrays the U.S. economy as having had higher gross private saving and, under plausible assumptions, fractionally higher average annual rates of change in real output and labor productivity from 1995 to 2002.

Keywords: Investment, capital, productivity, economic measurement, economic growth

Suggested Citation

Corrado, Carol A. and Sichel, Daniel E. and Hulten, Charles R., Measuring Capital and Technology: An Expanded Framework (August 2004). FEDS Working Paper No. 2004-65, Available at SSRN: https://ssrn.com/abstract=633264 or http://dx.doi.org/10.2139/ssrn.633264

Carol A. Corrado (Contact Author)

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Daniel E. Sichel

Wellesley College ( email )

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NBER ( email )

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Charles R. Hulten

University of Maryland - Department of Economics ( email )

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United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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