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Equipment Investment and Economic Growth

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  • J. Bradford De Long
  • Lawrence H. Summers

Abstract

Using data from the United Nations Comparison Project and the Penn World Table, we find that machinery and equipment investment has a strong association with growth: over 1960–1985 each extra percent of GDP invested in equipment is associated with an increase in GDP growth of one third of a percentage point per year. This is a much stronger association than found between growth and any of the other components of investment. A variety of considerations suggest that this association is causal, that higher equipment investment drives faster growth, and that the social return to equipment investment in well-functioning market economies is on the order of 30 percent per year.

Suggested Citation

  • J. Bradford De Long & Lawrence H. Summers, 1991. "Equipment Investment and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 445-502.
    • Handle: RePEc:oup:qjecon:v:106:y:1991:i:2:p:445-502.
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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
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    11. Romer,Paul M, 1989. "What determines the rate of growth and technological change?," Policy Research Working Paper Series 279, The World Bank.
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    14. Moses Abramovitz, 1956. "Resource and Output Trends in the United States Since 1870," NBER Books, National Bureau of Economic Research, Inc, number abra56-1, July-Dec.
    15. Robert Summers & Alan Heston, 1988. "A New Set Of International Comparisons Of Real Product And Price Levels Estimates For 130 Countries, 1950–1985," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(1), pages 1-25, March.
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