Faculty of Economics and Business Administration Publications Database

Appreciating Depreciation: Physical Capital Depreciation in a Developing Country

Volume: 44
Number: 3
Pages: 1277 - 1290
Month: June
ISSN-Print: 0377-7332
Link External Source: Online Version
Year: 2012
Keywords: Depreciation rate; Capital stock Investment; Manufacturing; Indonesia
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.