On the depreciation of automobiles: An international comparison

Since older automobiles are less efficient and technologically obsolete, over-aged capital stocks are associated with higher environmental burden. Given the rapid growth of over-aged car stocks in many poor countries, the knowledge of depreciation data, depreciation patterns, and their determinants in developing countries becomes increasingly important for effective environmental policies. This paper refers to used automobile prices and generates depreciation data for a sample of 54 car models from 30 countries. We found the following results: ( 1) Overall, geometric depreciation appears to be a good approximation to real depreciation rates. ( 2) Depreciation rates are significantly lower in developing countries than in industrialized countries. ( 3) When using corrected prices the depreciation rates increase substantially. The average depreciation in OECD countries is 31%, whereas in non-OECD countries it is about 15%. Besides prices for new cars, the economic life of automobiles is particularly dependent on real income. In the long-run, an income increase by $1000 is likely to increase the annual depreciation rate by 2.7% in OECD countries and 3.6% in non-OECD countries.