On Estimating the Rate of Return to Capital in Colombia

Abstract

The historical rate of return to capital in any country is a matter of interest both because it provides a basis for assessing the contribution of capital investment to the growth process and also because it is a key guide for estimating the opportunity cost of capital—a figure which in turn has a major role to play in the evaluation of projects by the public sector. The historical rate of return can be obtained for any year by taking the ratio of (a) that part of the national income which accrues to capital during the year to (b) the value of the national capital stock at the beginning of the year, with both (a) and (b) expressed in terms of prices of the same year. The problem is that we do not have direct information on either factor.