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Machines and the Economics of Growth

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Author Info
Aled ab Iorwerth

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Abstract

This paper summarizes the literature on economic growth. This literature suggests that investment in machinery and equipment (M&E) could foster economic growth. But, because of the need to cover the fixed costs of innovating, price is higher than the marginal cost and there will be underinvestment in M&E in a perfectly competitive economy. Further arguments based on public finance are also made about why there may be underinvestment in M&E.

L’auteur fait un sommaire de la littérature sur la croissance économique. Cette littérature suggère que l’investissement dans les machines et les équipements puisse augmenter le taux de croissance économique. Mais parce qu’il y a des coûts fixes à innover, le prix des machines et équipements sera supérieur à son coût marginal et donc, dans une économie parfaitement concurrentielle, il y aura sous-investissement. L’auteur mentionne également d’autres arguments, fondés sur la recherche en économie publique, qui abondent dans le sens d’un sous-investissement en machines et équipements dans une économie en concurrence parfaite.

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Paper provided by Department of Finance Canada in its series Working Papers-Department of Finance Canada with number 2005-05.

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  1. Centre for the Study of Living Standards, 2005. "What Explains the Canada-US ICT Investment Intensity Gap?," CSLS Research Reports 2005-06, Centre for the Study of Living Standards. [Downloadable!]
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This page was last updated on 2009-12-2.

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