Investment

Investment refers to the accumulation over time by firms of real capital goods (that is, those which will yield a future flow of services). Real capital goods can be subdivided into two types. Fixed capital is such items as plant, machinery, buildings and transport infrastructures which keep their particular physical form throughout their working life. Working capital consists of stocks of raw materials, manufactured inputs and final goods awaiting distribution. Each unit of working capital changes its form as it passes through the production process to the point of final consumption. In this chapter we shall be mainly concerned with the determinants of investment in fixed capital goods, alternatively referred to as fixed capital formation.