Fixed capital and long run economic growth: evidence from Poland

In this paper the results of testing the causal interdependences between the gross fixed capital formation and GDP in Poland are presented. Some recent theoretical deliberations (like alternative method of testing for direction and sign of long run causality) and econometric tests (bootstrap procedure, nonlinear causality test) were applied. The dataset included quarterly data for the period Q1 2000 – Q4 2009, however the research was also performed for non–crisis subsample (Q3 2002 – Q2 2008). Due to theoretical (formulation of growth models) and practical (omission of important variables) reasons employment was chosen as an additional variable. \nThe significant evidence of short run feedback between fixed assets and GDP as well as between fixed assets and employment were found in both periods analyzed. However, the long run positive impact of fixed capital on economic growth was found only for reduced sample. Moreover, the robustness of these results was also approved. \nThe results of this paper provided evidence to claim that fixed capital in Poland is still under its growth–maximising level. Although participation in UE stimulated rise in fixed assets, economic crisis have distorted this process. The main policy recommendation resulting from this paper is that the Polish government and private sector should definitely increase the level of fixed investment.