Capital Stock and
Consumption of Fixed
Capital
January 2013
Overview
 Methodology
 Data Sources
•
•
•
•
Gross Fixed Capital Formation
Asset Prices
Service Lives and Methods of Depreciation
SNA Adjustments
 Challenges, future work and some results from
the CSNA 2012
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Statistics Canada • Statistique Canada
2016-03-24
Measuring the capital stock
 There are a number of different ways to measure capital
stock:
• Survey’s where respondents place an estimate on the value of their
gross and net stock
• Administrative data where values are based upon accounting rules
and country specific tax regulations
• Perpetual Inventory Method where the gross investment in the
current period is added to the capital stock of the pervious period.
 Statistics Canada has chosen the PIM to produce estimates of
Canada’s capital stock. This is chosen because of it’s flexibility in
developing time series of capital stock.
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Statistics Canada • Statistique Canada
2016-03-24
Perpetual Inventory Method
 The perpetual inventory method (PIM) is a method of
constructing estimates of capital stock and consumption
of fixed capital from time series of gross fixed capital
formation;
 it allows an estimate to be made of the stock of fixed
assets in existence and in the hands of producers which
is generally based on estimating how many of the fixed
assets installed as a result of gross fixed capital
formation undertaken in previous years have survived to
the current period;
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Investment and Capital Stock Division
24 March 2016
Perpetual Inventory Method
 The Perpetual Inventory Method requires:
• Gross Fixed Capital Formation
• Price indexes for capital goods
• Service lives
• Methods of depreciations
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Statistics Canada • Statistique Canada
2016-03-24
Perpetual Inventory Method
Gross Fixed Capital Formation
Asset Prices
Gross Fixed Capital Formation –
Constant Prices
PIM
Gross Capital Stock
Method of
Depreciation
Services Lives
+
Mortality Function
+
Retirements
Consumption of Fixed
Capital
Asset Prices
Net Capital Stock
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Statistics Canada • Statistique Canada
24 March 2016
Perpetual Inventory Method - Geometric
Year
GFCF
1980
100
1981
200
1982
300
1983
400
Price
Index
100
105
110
115
GFCF at
Declining
1980
Average
Balance
Rate of
prices
Service Life Rate
Depreciation
100
7
1.65
23.6%
190
7
1.65
23.6%
273
7
1.65
23.6%
348
7
1.65
23.6%
Net Stock
1980
1981
1982
1983
7
1980
88
1981
67
168
1982
52
128
241
88
235
421
1983
39
98
184
307
628
Constant Replacement
Dollar
Cost
1984
1984
30
35
75
86
141
162
235
270
480
552
Statistics Canada • Statistique Canada
2016-03-24
Data Sources – Gross Fixed Capital
Formation
8
Investment and Capital Stock Division
24 March 2016
Data Sources – Non-Residential Gross
Fixed Capital Formation
 The Annual Capital and Repair Expenditures
Survey collects information on:
•
•
•
•
•
•
•
•
•
9
Investment (new, used, renovations)
Leased assets
Work in progress
Estimates of useful life of assets
Repair expenditures
Disposals and sales of used assets with age
Capacity utilization and reasons for high or low capacity use
Costs components of expenditures
Other
Investment and Capital Stock Division
24 March 2016
Data Sources – Non-Residential Gross
Fixed Capital Formation
 Two survey periods are organized and timed to
collect three sets of annual data related to
investment intentions, preliminary actual
expenditures and actual capital and repair
expenditures.
 Intentions and Preliminary actual capital and
repair expenditures
• The investment intentions for year Y(2013) and the
preliminary actual expenditures for Y-1 (2012) are
collected, using a combined questionnaire, from
October of Y-1 (2012) to January of Y(2013);

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Investment and Capital Stock Division
24 March 2016
Data Sources – Non-Residential Gross
Fixed Capital Formation
 Actual capital and repair expenditures
• The actual capital and repair expenditures for Y2(2011) are collected from March of Y-1(2012) to
October of Y-1(2012).
• Establishments selected for the sample receive either
the regular survey questionnaire (short or long form),
a specialized survey questionnaire (short or long
form) or the new project questionnaire.
• Respondents are asked to report expenditures for
their 12 months fiscal period for which the final day
occurs between April 1 of the reference year and
March 31 of the following year.
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Investment and Capital Stock Division
24 March 2016
Data Sources – Non-Residential
Gross Fixed Capital Formation
 Annual Capital and Repair Expenditures Survey –
Intentions and Preliminary
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Investment and Capital Stock Division
24 March 2016
Data Sources – Non-Residential Gross
Fixed Capital Formation
 Annual Capital and Repair Expenditures Survey Actual
13
Investment and Capital Stock Division
24 March 2016
Data Sources –Residential Gross Fixed
Capital Formation
 Comprises three elements:
• New residential investment
 single, semi-detached, row, apartments, mobiles, cottages
and conversions
• Renovations
 Improvements and modifications to existing dwellings
• Acquisition fees
 Real Estate fees, land transfer taxes, legal fees, inspection
fees
14
Investment and Capital Stock Division
24 March 2016
Data Sources – New Residential Gross
Fixed Capital Formation
 The monthly Building Permits Survey of Canadian
municipalities collects data on the value of
construction intentions for buildings in the nonresidential sector and the number of dwellings
authorized and value of construction projects in the
residential sector.
 The survey also measures the number of dwelling
units demolished.
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Statistics Canada • Statistique Canada
2016-03-24
Data Sources – New Residential
Gross Fixed Capital Formation
 The Building Permits Survey targets all Canadian municipalities
that issue permits. At present approximately 2,400 Canadian
municipalities, representing all provinces and territories and
encompassing 95% of the Canadian population, are covered by
the survey.
 In practice, all urban agglomerations are represented in the
survey, as well as a high percentage of rural municipalities. All of
these municipalities are surveyed.
 The municipalities comprising the remaining 5% are not included
in the survey, and the figures are not adjusted to represent them.
They make up very small portions of the population, and their
construction activities have little impact on the total.
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Statistics Canada • Statistique Canada
2016-03-24
Data Sources –Residential Gross
Fixed Capital Formation
 New construction is combined with work put in place
coefficients (provided by the Canadian Mortgage and
Housing Corporation) are used to derive residential
investment
17
Investment and Capital Stock Division
24 March 2016
Data Sources –Residential Gross
Fixed Capital Formation


Additions and
Renovations come from
the survey of household
spending
Acquisition fees are taken
from the annual survey of
Real Estate Agents,
Brokers, Appraisers and
Other Real Estate
Activities, Real Estate
board sales data, land
transfer tax comes from
local governments
accounts, legal fees are
calculated as a
percentage of sales
commission.
18
Investment and Capital Stock Division
24 March 2016
Data Sources – R&D Gross Fixed
Capital Formation
 Expenditures on R&D (GERD and HERD) is the
combination of five R&D collection programs:
• 4212 -Federal Science Expenditures and Personnel, Activities in
the Social Sciences and Natural Sciences
• 5109 - Higher Education Research and Development Estimates
• 4201- Research and Development in Canadian Industry (RDCI)
• 4204 - Research and Development of Canadian Private Non-Profit
Organizations
• 4208 - Scientific Activities of Provincial Research Organizations
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Statistics Canada • Statistique Canada
2016-03-24
Data Sources – R&D Gross Fixed
Capital Formation
 The GERD/HERD program covers the following 5 major sectors
based on the OECD framework for measuring R&D expenditure
•
•
•
•
•
Government
Business enterprises
Higher education
Private non-profit organizations
Foreign
 The external sector is covered by the Balance of Payments
survey of R&D services
 Employment data is used to develop the quarterly R&D
estimates.
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Statistics Canada • Statistique Canada
2016-03-24
Data Sources – R&D Gross Fixed
Capital Formation
 Investment
• Machinery and equipment
• Intellectual property products
• Mineral exploration
• Research and development
• Software
• Construction
• Residential investment
• Non-residential investment
• Weapons systems
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Statistics Canada • Statistique Canada
2016-03-24
Data Sources: Asset Prices
22
Investment and Capital Stock Division
24 March 2016
Data Sources – Asset Prices
 Non-Residential Gross Fixed Capital Formation
Asset Prices
•
•
•
•
•
•
23
2316 - Electric Utility Construction Price Indexes (EUCPI)
2317 - Non-Residential Building Construction Price Indexes (NRBCPI)
Railways (constructed using input prices)
Other engineering (constructed using input prices)
Highway Construction (constructed using input prices)
2312 Machinery and Equipment Price Index
Investment and Capital Stock Division
24 March 2016
Data Sources – Asset Prices
 Residential Gross Fixed Capital Formation Asset
Prices
• New Housing
 2310 New Housing Price Index (NHPI)
 2330 - Apartment Building Construction Price Indexes (ABCPI)
• Renovations
 Labour force cost indexes for the construction sector (by
province), Construction materials price indexes (Canada only),
• Acquisition Fees
 GST, TVQ in constant dollars - NHPI
 Land developers fees, fees for mortgage file reviews and
premiums - Rate applied to new construction in constant $
24
Investment and Capital Stock Division
24 March 2016
Data Sources – Asset Prices
 R&D Gross Fixed Capital Formation Asset Prices
• Labour force cost indexes for employees undertaking
research and development activities, R&D materials
price indexes (Canada only) - similar to the approach
used to deflate software
25
Investment and Capital Stock Division
24 March 2016
Data Sources: Services Lives and
Method of Depreciation
26
Investment and Capital Stock Division
24 March 2016
Data Sources: Services Lives
 Prior to 1987: lives
based on
administrative
records
 1987 to present:
lives based on
Capital and Repair
Expenditure Survey
results
27
Investment and Capital Stock Division
24 March 2016
Data Sources: Services Lives
 Stable over the 5-year period (1985 – 1989)
 Comparable with those of other OECD countries
 New lives better reflect the changing
composition of investment
28
Investment and Capital Stock Division
24 March 2016
Data Sources: Services Lives
Discard
Ages
Mean
Vintage
Life
OL
Vintage
Life
To
29
1947
1987
Investment and Capital Stock Division
24 March 2016
Mortality Function - Normal Distribution
Average Service Life = 10 years
20
15
10
5
t
%
5
6
7
8
9
10
11
12
13
14
15
0.3
3.1
7.6
12.7
16.9
18.5
16.9
12.7
7.6
3.1
0.3
0
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16 17 18 19 20
03 3.1 7.6 12.7 16.9 18.5 16.9 12.7 7.6 3.1 0.3
30
Investment and Capital Stock Division
24 March 2016
Data Sources : Method of Depreciation Geometric
30
25
20
  R/ L
15
10
5
t
%
1
2
3
4
5
6
7
8
9
10
26.3
20.4
15.7
11.9
8.9
6.5
4.6
3.0
1.8
0.8
0
1
31
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18 19 20
Investment and Capital Stock Division
24 March 2016
Data Sources : Method of Depreciation Linear
12
t
%
10
1
2
3
4
5
6
7
8
9
10
1
,
L
x  1,2,3,..., L
8
d x ,SL 
6
4
2
10
10
10
10
10
10
10
10
10
10
0
1
32
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16 17 18 19 20
Investment and Capital Stock Division
24 March 2016
Data Sources : Method of Depreciation Hyperbolic
60
t
50
L  ( x  1)
L x

L   ( x  1) L  x
x  1,2,3,..., L
1
2
3
4
5
6
7
8
9
10
d x ,H 
40
30
  .75
  .50
20
10
%
1.1
1.3
1.7
2.1
2.8
3.9
5.9
9.6
18.8
52.6
0
1
2
3
4
5
6
7
8
  .75 (Construction)
24 March 2016
9 10 11 12 13 14 15 16 17 18 19 20
  .50 (M&E)
Investment and Capital Stock Division
33
Data Sources: SNA Adjustments
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Investment and Capital Stock Division
24 March 2016
SNA Adjustments
 Required because the survey and administrative
data sources do not take specific SNA
adjustments into account
•
•
•
•
Software
Differences in sectoring
Under-coverage (e.g. Aboriginal General Government)
Balancing Adjustments
 In order for the capital stock to be consistent with
SNA concepts and definitions the survey data
need to be adjusted
35
Investment and Capital Stock Division
24 March 2016
Outputs
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Investment and Capital Stock Division
24 March 2016
Non-Residential and Intellectual
Property Products Capital Stock
 Flows and stocks of fixed non-residential capital, by North
American Industry Classification System (NAICS) and
asset, Canada, provinces and territories, annual (Dollars),
1955 to 2012 Description 031-0002
 Flows and stocks of fixed non-residential capital, by sector
of North American Industry Classification System (NAICS)
and asset, Canada, annual (Dollars), 1961 to 2012
Description 031-0003
 Flows and stocks of fixed non-residential capital, total all
industries, by asset, provinces and territories, annual
(Dollars), 1961 to 2012 Description 031-0004
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2016-03-24
Residential Capital Stock
 Flows and stocks of fixed residential capital,
annual (Dollars), 1941 to 2011 Description 0300002
• Region (National, Provincial and Territory)
• Valuation (Current and Constant Dollars)
• Category (Investment, Demolitions, Depreciation and
Net Stock)
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Statistics Canada • Statistique Canada
2016-03-24
Some Challenges and Future Work
39
Investment and Capital Stock Division
24 March 2016
Integration across the CSNA
 With CSNA12 Statistics Canada took a step forward in
ensuring that all capital stock and consumption of fixed
capital were coherent across the following programs:
•
•
•
•
•
Quarterly GDP
Input-Output Tables
Fixed Capital and Investment Flows
National Balance Sheet
Multi-Factor Productivity
Coherent at the
aggregate level but
not the detailed level
 We hope to have data among the following
programs coherent at the detailed level by 2015
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Statistics Canada • Statistique Canada
2016-03-24
Some Results from the CSNA 2012
Implementation
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Investment and Capital Stock Division
24 March 2016
Gross National Income and Net National Income
The adoption of a new methodology for depreciating Canada’s capital stock had an impact
on net domestic income. Net domestic income represents the nation’s income generated from
the production of goods and services after removing an estimate for the value of capital used
up in that production. Even though the level of gross domestic income increased, the level of
net domestic income fell, as the improved valuation shows that more of the country’s gross
income was required to replenish the capital stock used up in the production of goods and
services.
Revision GDP - Gross vs Net
50,000
30,000
20,000
10,000
0
-10,000
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Millions of Dollars
40,000
-20,000
-30,000
Revision GDI
42
Revision NDI
Statistics Canada • Statistique Canada
2016-03-24
Consumption of Fixed Capital
The amount of income the nation needs to set aside to replace capital used up in the
production process (consumption of fixed capital) increased due to an increase in the asset
boundary (specifically research and development) and the change in valuation.
Consumption of Fixed Capital - CSNA12 vs CSNA97
300,000
millions of dollars
250,000
200,000
150,000
100,000
50,000
Consumption of Fixed Capital - CSNA12
43
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
-
Consumption of Fixed Capital - CSNA97
Statistics Canada • Statistique Canada
2016-03-24
CSNA12: GDP by Expenditure Account: Government
Final Consumption Expenditures
 CSNA97 included expenditures on research and
development and military weapons systems.
 CSNA12 includes consumption of fixed capital – research
and development and military weapons systems.
2011
CSNA97: Government final consumption expenditures
367,579
Capitalization of research and development
-10,981
Capitalization of military weapons systems
-1,747
Consumption of fixed capital: Methodological improvements and addition of
research and development and military weapons systems
Addition of the Aboriginal general governments sub-sector, excluding
consumption of fixed capital
Statistical revisions
18,560
CSNA12 – Government final consumption expenditures
44
Statistics Canada • Statistique Canada
6827
5126
385,364
Government Consumption of Fixed Capital
A large share of the increase in government spending is due to upwardly revised estimates of the
consumption of fixed capital – the amount of income governments need to set aside to replace assets (such
as roads, bridges, machinery and equipment, research and development) used in delivering government
services.
Consumption of Fixed Capital - Government
Sector
70,000
millions of dollars
60,000
50,000
40,000
30,000
20,000
10,000
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
-
Government Consumption of Fixed Capital - CSNA12
Government Consumption of Fixed Capital - CSNA97
45
Statistics Canada • Statistique Canada
2016-03-24
Government Final Consumption Expenditures
Government expenditures as a share of GDP have been revised upwards. CSNA12 revisions tended to
increase the size of the government sector within the CSNA.
Government Final Consumption Expenditures
and Investment as a % of GDP
30.0%
% Share of GDP
25.0%
20.0%
15.0%
10.0%
5.0%
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0.0%
Revised
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Statistics Canada • Statistique Canada
2016-03-24