Applying a New Approach to Estimate the Net Capital Stock of Transport Infrastructure by Region in South Korea

• Main Author: LEE, JONG YEARN
• Format: Article
• Language: English
• Published: Korea Development Institute 2018-05-01
• Series: KDI Journal of Economic Policy
• Subjects: Regional Capital Stock; Transport Infrastructure; Modified Benchmark Year Method
• Online Access: https://doi.org/10.23895/kdijep.2018.40.2.23

Given the limited availability of data in South Korea, this study proposes a method by which to estimate regional capital stock by modifying the benchmark year method (BYM) and applies it to estimate regional net capital stock by sector in transport infrastructure. First, it estimates time-varying sectoral depreciation rates using the sectoral net capital stock and the investment amount for each period. Second, it estimates the net capital stock of each period using the net capital stock in the base year and the investment in each period. Third, in order to ensure that the sum of net capital stocks by region is equal to the nationwide estimate, the national estimates are allocated to each region according to the proportion of the values derived from the previous stage. The proposed method can alleviate well-known problems associated with conventional BYMs, specifically the upward bias and arbitrary choice of the depreciation rate.