Estimating capital stock and return on capital for Georgia

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Ivane Javakhishvili Tbilisi State University Press
In this paper, we estimate capital stock for Georgia using the Perpetual Inventory Model (PIM). Due to data constraints, different techniques are used to estimate the model’s parameters. The model is based on public and private annual investment data from 1996-2017. Georgia’s Statistics Office doesn’t publish official capital stock data, a key variable in estimating aggregate production function which is essential for economic growth models, productivity analysis, and many other macroeconomic applications. Thus, our work will contribute to different macroeconomic models on forecasting and policy analysis for Georgia. The second part of the paper presents the calculation of return on capital using the newly constructed capital stock series and uses the rate of return on capital series to try to understand what affected business investment demand in Georgia on a national level from 1999-2017.
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Capital Stock Estimation, Perpetual Inventory Model, Return on Capital, Business Investment
Economics and Business, №1, 2020, pp. 125-143