Equipment Investment and Economic Growth
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.
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|Date of creation:|
|Publication status:||published in Quarterly Journal of Economics 106: 2 (May 1991), pp. 445-502. (Earlier version issued as NBER working paper no. 3515, November 1990.)|
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