ANALYSIS OF HUNGARIAN CORPORATE INVESTMENT USING MICRO DATA
3.7 The user cost of capital
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Although the user cost of capital has been steadily declining since the mid-2000s, for the time being this has not resulted in an increase in the investment rate. In this analysis, the causal effect of the user cost on investment is not examined. However, our findings reveal that in relation to the development of Hungarian corporate investment, the effect of the user cost was weakened by the aforementioned factors: the fall in the number and investment of new entrant companies, the high number of ageing and stagnant micro enterprises, the deterioration in market conditions for In Hungary, the average user cost declined considerably in the companies producing for the domestic market and % 2000s the late 1990s and at a slower pace from the early 120 50 concentration, as a result of which the volume of 110 (Chart 3-18). The declining trend in interest rates 45 and aggregate investment may be affected even by a few 100 40 relative prices had a favourable impact on the user cost. 90 especially large projects. 35 80 was partly offset by the rise in depreciation rates, This 30 70 60 took place as a result of changes in the composition 25 which 50 of40tangible assets (increasing share of machines) and20in 15 30 accounting rules. Both led to a faster depreciation10of 20 5 of capital stock, thus increasing the user cost. At the end 10 0 0 the period, following the launch of the easing monetary cycle, all the factors lowered the user cost. 2001
In addition to the factors examined above, companies’ investment decisions are also influenced by the average costs at which the investment can be implemented at a given point in time. The costliness of corporate investment is captured by the indicator called the user cost of capital. The user cost of capital is fundamentally determined by price changes in physical capital (real estate, machinery, equipment, etc.), the relative price of the capital compared to output, interest rates and depreciation (for details, see the box).
tőkeköltség
Chart 3-18 kockázat mentes hozam (jobb tengely) Development of the user cost of capital értékcsökkenés (jobb tengely) (2001=100, per cent) 50 45 40 35 30 25 20 15 10 5 0
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Per cent
120 110 100 90 80 70 60 50 40 30 20 10 0 User cost of capital Risk-free rate (right axis) Depreciation (right axis) Source: MNB calculations.
3-2. Box THE USER COST OF CAPITAL
The user cost of capital (hereinafter referred to as the ‘user cost’) is a rate of return on capital implying the rent of a unit of new capital good. User cost plays a central role during the optimisation of corporate investment decisions because in the course of profit maximisation, inter alia, the price of capital as a factor of production must be produced. GROWTH REPORT • 2016
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