Comparing Approaches to Valuing Sectoral Net Investments

Abstract

In the literature of comprehensive national accounts, national net investments are used to indicate dynamic welfare improvement in an economy. A well-known approach associates national net investments with the shadow value of change in stock of capital assets in an economy. Following this capital stock approach, sectoral net investments can be de…ned as the shadow value of change in stock of capital assets owned by a sector in an economy. An alternative approach is based on future commodity ‡ows to a sector. This commodity ‡ow approach associates sectoral net investments with the present value of changes in future commodity ‡ows to a sector. In the present paper, I compare these two approaches and prove that they are coincide with each other only if the future commodity ‡ows to the sector can be attributed to current stock of capital assets in the sector alone. In empirical studies, commodity ‡ow approach can be a better alternative if the purpose is to estimate the change in welfare of a recipient of future cash ‡ows.