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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, President and Fellows of Harvard College, vol. 106(2), pages 445-502.
    • Handle: RePEc:oup:qjecon:v:106:y:1991:i:2:p:445-502.
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