Investment and Technological Change

On the basis of the pioneering work of scholars such as Clark, Kuznets and Lewis, it is now widely recognised that economies grow through investment and the adoption of new technologies in all sectors of the economy. But as economists collect more empirical evidence on processes of capital accumulation and technological progress, in various parts of the world since the early nineteenth century, it has become clear that this generalisation must be modified in the light of the experience of different countries and regions. While it is usually true that some acceleration in the ratio of investment to GDP has accompanied the process of economic growth, it is not always clear whether the growth in investment has been a cause or a consequence of the growth process. Some economies have grown much faster than others with broadly similar ratios of investment to GDP; in other words, there have been substantial disparities across countries in the impact a given quantum of investment has had on the growth of GDP. This difference is crudely captured in differences in the ICOR (incremental capital-output ratio) or in more sophisticated estimates of growth in total factor productivity. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.