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Is Fixed Investment the Key to Economic Growth

  • Blomstrom, Magnus
  • Lipsey, Robert E
  • Zejan, Mario

This paper examines shares of fixed capital formation in GOP and rates of economic growth for more than 100 countries over successive 5-year periods between 1965 and 1985 to determine the direction of causality between them. Simple regressions and multiple regressions including several standard determinants of growth, as well as a simple causality test, provide more evidence that increases in growth precede rises in rates of capital formation than that increases in capital formation precede increases in growth. High rates of fixed capital formation accompany rapid growth in per capita income, but we find no evidence that fixed investment is the only or main source of ignition for economic growth.

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Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 111 (1996)
Issue (Month): 1 (February)
Pages: 269-76

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Handle: RePEc:tpr:qjecon:v:111:y:1996:i:1:p:269-76
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  1. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
  2. Martin Feldstein & Philippe Bacchetta, 1989. "National Saving and International Investment," NBER Working Papers 3164, National Bureau of Economic Research, Inc.
  3. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  4. Moses Abramovitz, 1956. "Resource and Output Trends in the United States Since 1870," NBER Books, National Bureau of Economic Research, Inc, number abra56-1, May.
  5. Fumio Hayashi, 1989. "Is Japan's saving rate high?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-9.
  6. Moses Abramovitz, 1956. "Resource and Output Trends in the United States Since 1870," NBER Chapters, in: Resource and Output Trends in the United States Since 1870, pages 1-23 National Bureau of Economic Research, Inc.
  7. Sen, Amartya, 1983. "Development: Which Way Now?," Economic Journal, Royal Economic Society, vol. 93(372), pages 742-62, December.
  8. Benhabib, Jess & Jovanovic, Boyan, 1991. "Externalities and Growth Accounting," American Economic Review, American Economic Association, vol. 81(1), pages 82-113, March.
  9. Paul M. Romer, 1987. "Crazy Explanations for the Productivity Slowdown," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 163-210 National Bureau of Economic Research, Inc.
  10. Fumio Hayashi, 1986. "Why Is Japan's Saving Rate So Apparently High?," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 147-234 National Bureau of Economic Research, Inc.
  11. Magnus Blomstrom & Robert E. Lipsey & Mario Zejan, 1992. "What Explains Developing Country Growth?," NBER Working Papers 4132, National Bureau of Economic Research, Inc.
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