Capital Stock and Capital Output Ratios: A Comparison Between the United States, United Kingdom and the Federal Republic of Germany

Doblin, C.P. (1991). Capital Stock and Capital Output Ratios: A Comparison Between the United States, United Kingdom and the Federal Republic of Germany. IIASA Working Paper. IIASA, Laxenburg, Austria: WP-91-029

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Abstract

The paper assesses capital stock and capital output ratios for major branches of the economy and selected industries. It is an important part of the research effort to determine historical rates of economic and technological change, especially those related to energy systems and their environmental impacts. The composition of capital stock and its vintage structure are a good measure and determinant of rates of change. Furthermore, the analysis presented in this paper may be useful for estimating the capital input required for production of goods and services at given levels of output. The capital output ratios could also enhance understanding of the selection mechanism operating among industries with varying capital productivity.

The first part of the paper analyzes the composition and distribution of capital stock within the economies of the US, UK, and the FRG. It is not surprising that the share of capital stock in different sectors shows the known development of investment and employment. In the last 25 years the share of fixed assets invested in agriculture decreased and the share of the national capital stock invested in services increased. The development in major branches and industries shows that transport (due to the decreased importance of railroads as a means of transportation) declined, whereas public utilities and construction comprised a stable proportion of the capital stock and finance/insurance/real estate and other services, excluding government, absorbed an increasing part of the national capital stock.

The second part of the study tries to determine common features of capital output ratios economy wide and for major branches and selected industries. It can be concluded that there are some similarities for the US, UK and the FRG. For example, during the 1980s, capital output ratios for the economy as a whole but excluding residential were found to be quite similar for the US, UK and the FRG, in that they varied only between 2.5 and 2.8.

Over a longer time frame, the US capital output ratio was relatively constant whereas the capital output ratio in the FRG increased by 50 percent in less than 30 years (from 1.8 in 1960 to 2.7 in 1987). This trend is consistent with an earlier investigation (Doblin, 1978), that showed growing capital output ratios for the 1960s and 1970s in the FRG (enterprises, excluding residential) as well as the UK (1964-1974).

At the major branch level, a constant figure over the entire time frame was found for the US, UK and FRG capital output ratios for manufacturing, construction, trade, and finance/insurance/real estate. For the other branches, no common trend could be established. Furthermore, the ranking of the capital output ratios shows clearly that public utilities have the highest, and construction the lowest, capital output ratios. The absolute level is similar in all three countries for construction (0.5-0.9) and in the US and the FRG for manufacturing (1.7-2.0).

Another interesting fact is that in the three countries, the deviation from the average was found to be the same for a number of industries. Capital output ratios were above the national average for agriculture, public utilities, transport, and communication; and below the average for manufacturing (with the exception of the UK), construction, trade and finance.

With regard to observations at industry level, motor vehicles and equipment, stone/clay/glass, and radios/televisions showed a deterioration of capital productivity, whereas in chemical and allied industries the reverse happened. Food/drink, non-electric and electric machinery (with the exception of the FRG), and paper are rather constant. As regards the magnitude of the coefficients it could only be said that the railroads had the highest capital output ratio. Capital output ratios above the national average were also found for chemical and allied industries, and radios/televisions; and below average for non-electric and electric machinery.

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