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Equipment Investment and Economic Growth

Equipment Investment and Economic Growth 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. * We thank Jonathan Gruber and Douglas Hendrickson for enthusiastic and highly capable research assistance; Robert Barro, Barry Bosworth, Anne Case, David Cutler, Paul David, Jay Hamilton, Dale Jorgenson, Anne Krueger, Ian McLean, Paul Romer, Andrei Schleifer, Robert Waldmann, Jeffrey Williamson, and especially Robert Summers for helpful discussions; Alan Heston and Robert Summers for providing unpublished data, revisions of published data, and for advising us on the use of the data; and David Cutler for aid in manipulating data. This content is only available as a PDF. © 1991 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Quarterly Journal of Economics Oxford University Press

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References (48)

Publisher
Oxford University Press
Copyright
© 1991 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
ISSN
0033-5533
eISSN
1531-4650
DOI
10.2307/2937944
Publisher site
See Article on Publisher Site

Abstract

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. * We thank Jonathan Gruber and Douglas Hendrickson for enthusiastic and highly capable research assistance; Robert Barro, Barry Bosworth, Anne Case, David Cutler, Paul David, Jay Hamilton, Dale Jorgenson, Anne Krueger, Ian McLean, Paul Romer, Andrei Schleifer, Robert Waldmann, Jeffrey Williamson, and especially Robert Summers for helpful discussions; Alan Heston and Robert Summers for providing unpublished data, revisions of published data, and for advising us on the use of the data; and David Cutler for aid in manipulating data. This content is only available as a PDF. © 1991 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Journal

The Quarterly Journal of EconomicsOxford University Press

Published: May 1, 1991

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