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Machinery & Equipment Investment and Growth: Evidence from the Canadian Manufacturing Sector

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  • Tahir A. Abdi

Abstract

New Growth Theory points to three potential influences on output and productivity growth – investment in human capital, R&D, and investment in machinery and equipment (M&E). However, much of the literature focuses on human capital and R&D as sources of growth. Few efforts have been made to estimate the impact of M&E investment. This paper presents empirical models that endeavour to fill this gap. Using panel data on 20 Canadian manufacturing industries (1961-1997) and time-series data (1961-2000) for the entire Canadian manufacturing sector, this paper finds that the elasticities of output with respect to M&E capital stock and M&E investment are well above capital’s share of national income suggested by a constant returns to scale Cobb Douglas production function. However, the coefficient on labour is near its income share. The results also suggest that M&E investment is not the only source of growth because the elasticity of output with respect to structures investment is also well above its income share, indicating the possible existence of complementarities between the two types of capital. La Nouvelle théorie de croissance identifie trois sources potentielles qui peuvent influencer la croissance de l’output et de la productivité – l’investissement en capital humain, la recherche et le développement, et l'investissement en machines et matériel. Toutefois, la majorité de la littérature se concentre sur les deux premières sources citées, peu d'efforts ayant été faits pour estimer l'impact de l'investissement en machines et matériel. Cet papier présente des modèles empiriques qui tentent de combler à cette lacune. En utilisant des données de panel pour 20 industries canadiennes (1961-1997) et des séries chronologiques (1961-2000) pour le secteur manufacturier canadien, nous trouvons que les élasticités de l’output par rapport au stock de capital en machines et matériel et à l'investissement en machines et matériel dépasse de loin la part du capital dans le revenu national suggérée par une fonction de production Cobb Douglas à rendements d’échelle constants. Cependant, le coefficient de la main d’œuvre est, lui, près de sa part du revenu. Nos résultats suggèrent également que l'investissement en machines et matériel ne soit pas la seule source de croissance car l'élasticité de l’output par rapport à l'investissement en structures est également bien au-dessus de sa part du revenu, indiquant l'existence possible de complémentarités entre les deux types de capital.

Suggested Citation

  • Tahir A. Abdi, "undated". "Machinery & Equipment Investment and Growth: Evidence from the Canadian Manufacturing Sector," Working Papers-Department of Finance Canada 2004-04, Department of Finance Canada.
  • Handle: RePEc:fca:wpfnca:2004-04
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    Cited by:

    1. Marian Lydall, 2009. "Assessing the impact of Transnet's and Eskom's infrastructure investment programmes on the capital goods sector," Development Southern Africa, Taylor & Francis Journals, vol. 26(3), pages 429-446.

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