Calculating a Country’s Capital Input: A Review, and Calculations for the Turkish Capital Stock

This paper reviews the topic of calculating the capital input for a country, and calculates it for Turkey for the 1987-2013 period. The Turkish stock of machinery and equipment (henceforth equipment) is estimated roughly at around half of GDP in terms of value, while the stock of structures (i.e., homes, offices, industrial and mining structures, roads, bridges, etc.) at around 1.5 times GDP. The aggregate capital input is calculated by combining those two stocks according to their contributions to production rather than just their sizes. Since the depreciation rate is much higher for equipment than for structures, the marginal user cost (and therefore the marginal product) should be higher for equipment. The previous literature on the Turkish capital stock ignores this difference, implicitly putting too little weight on the highly cyclical equipment stock, which leads to an understatement of the cyclical variation in the capital input by about 40 percent.