The Tyranny of Concepts : CUDIE (Cumulated, Depreciated Investment Effort) is NOT capital

The Tyranny of Concepts : CUDIE (Cumulated, Depreciated Investment Effort) is NOT capital

The cost of public investment is not the value of public capital. Unlike for private investors, there is no remotely plausible behavioral model of the government as investor that suggests that every dollar the public sector spends as "investme...

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Bibliographic Details
Main Author: Pritchett, Lant
Format: Policy Research Working Paper
Language:English
en_US
Published: World Bank, Washington, DC 2014
Subjects:
ACCOUNTING
ACTUAL COSTS
AGENCY PROBLEMS
ASSETS
CAPACITY UTILIZATION
CAPITAL EMPLOYED
CAPITAL GOODS
COMMODITY PRICES
COST MINIMIZATION
COST OF CAPITAL
DEFLATION
DEPRECIATION OF ASSETS
DEVELOPED COUNTRIES
DISCLOSURE
DISCOUNT RATES
ECONOMIC GROWTH
ECONOMIC PERFORMANCE
EMPIRICAL STUDIES
EXCHANGE RATE
EXPECTED VALUE
GDP
INCOME
INFLATION
INVENTORY
INVESTMENT SPENDING
MARGINAL PRODUCT
MINES
MONOPOLIES
NATIONAL ACCOUNTING
PRICE DIFFERENCES
PRIVATE GOODS
PRIVATIZATION
PRODUCTION FUNCTION
PRODUCTIVITY
PROFITABILITY
PUBLIC ENTERPRISES
PUBLIC GOODS
TAX COLLECTION
TELECOMMUNICATIONS
TERMS OF TRADE
TIME SERIES
TOTALITARIAN REGIMES
VALUATION
VOTERS
WEALTH
Online Access:http://documents.worldbank.org/curated/en/2000/05/437638/tyranny-concepts-cudie-cumulated-depreciated-investment-effort-not-capital
http://hdl.handle.net/10986/18846
Description
Summary:The cost of public investment is not the value of public capital. Unlike for private investors, there is no remotely plausible behavioral model of the government as investor that suggests that every dollar the public sector spends as "investment" creates capital in an economic sense. This seemingly obvious point has so far been uniformly ignored in the voluminous empirical literature on economic growth, which uses, at best, "cumulated, depreciated investment effort" (CUDIE), to estimate capital stocks. But in developing countries especially, the difference between investment cumulated at cost and capital value is of primary empirical importance: government investment is half or more of total investment. And perhaps as much as half, or more of government investment spending has not created equivalent "capital." This suggests that nearly everything empirical written in three broad areas is misguided. First, none of the estimates of the impact of public spending identify the productivity of public capital. Even where public capital could be very productive, regressions and evaluations, may suggest that public investment spending has little impact. Second, everything currently said about "total factor productivity" in developing countries is deeply suspect, as there is no way empirically to distinguish between low output (or growth) attributable to investments that created no "factors" and low output (or growth) attributable to low (or slow growth in) productivity in using accumulated "factors." Third, multivariate growth regressions to date have not, in fact, "controlled" for the growth of capital stock, so spurious interpretations have emerged.

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