Introduction

Comparing the levels and growth rates of fixed capital stocks is an important input into explaining differences in labour productivity and ultimately in standards of living across countries. To do so requires estimates of fixed capital which are measured in a consistent way across countries. Statistical offices in most countries do use the same measurement technique, the perpetual inventory method (PIM), which estimates current capital stocks as the sum of past real investments in fixed capital which have survived up to the current period. However each country differs in the assumptions they employ to implement the PIM, in particular, those on the service lives of assets.

This chapter attempts to shed more light on the issues involved in comparing fixed capital stocks across countries focusing on the impact of differences in mean service lives and the form retirement distributions are assumed to take around the average service life. It also considers in some detail problems which arise from differences in methods used to calculate investment deflators. The paper then presents capital stock measures for three European countries, the UK, Germany, and France. It is helpful to contrast the capital experience of the European countries with that in the USA, the world productivity leader, and with Japan which has experienced a marked improvement in relative productivity in the postwar period. The chapter therefore also presents capital stock estimates for these two countries.