Capital coefficients in Philippine manufacturing industries: estimation and analysis
Date
1966-05
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Abstract
Capital coefficient estimates based on capacity output are derived for the twenty 2-digit (ISIC) manufacturing indus tries and the nine 3-digit (ISIC) food groups. A sample survey was conducted to provide estimates of the capacity utilization rate of manufacturing establishments in 1961 for use in the calculation of capacity output.
It is noted that for an underdeveloped economy, Philippine manufacturing firms seem to operate at significant excess capacity. A number of reasons are offered which serve to support this observation.
Book value of capital assets in each industry (obtained from the 1961 Economic Census) is divided by the corresponding estimate of capacity output to arrive at the depreciated capital coefficient estimate. Estimates based on equipment, fixed assets (excluding land), and total capital-- representing different
measures of the extent of capital use, are presented.
The incremental capital coefficient estimate, which would serve to forecast investment requirements for the expansion of industrial capacity, is approximated by the undepreciated average coefficient. A theoretical explanation is provided in support of the empirically established similarity between the two types of capital coefficient.
An estimating equation for the undepreciated value of equipment, which puts together the influences of price changes, growth of capital assets, and lifespan of equipment, is developed. Using this equation and the estimated values of capacity output, capital coefficient estimates based on undepreciated value of equipment are derived.
No significant correlation is found to exist between the durability of product and of equipment and the size of the industry's capital coefficient. The theoretical implications are examined.
The coefficient estimates are compared with those obtained for corresponding industries in Japan and the United States. There is no evidence that capital coefficients are higher in the advanced economics considered. In fact, Philippine coefficients are shown to be highest in several industries. The observation that the rankings of the industries by size of the capital coefficient in the three countries differ significantly is also noted.
It is demonstrated that differences in industrial structure made possible the higher coefficient values for the Philippines in several industries. Factor market imperfections lead to a situation where capital and labor are priced lower and higher, respectively, then their true scarcity values. Lastly, the limitation imposed by technology results in methods of production different from those suggested by factor endowments.
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Keywords
Manufacturing, Capital coefficients