Investment Is Up, But Capital Stocks Are Down

WHY IS THIS IMPORTANT? Although knowledge generation is a key to driving economic growth, the size and quality of the nation's capital stock (e.g., machines, equipment), particularly information technology, is the critical determinant of productivity and real wage advance.⁴² Moreover, it is through the acquisition of new generations of equipment that technological innovations are spread throughout the economy.

THE TREND: () Business investment in new equipment as a share of GDP has grown significantly in the 1990s, increasing more than 40 percent from the late 1980s. However, there is a difference between investment (the amount of money spent per year) and capital stocks (the total value of capital equipment in any one year). Capital stocks have actually declined in the 1990s, from about 5.3 percent of GDP in the 1980s to approximately 4.2 percent in the 1990s. It's not entirely clear why the value of capital stock is going down while investments are up, but one reason is certainly that an increasing share of investment is now in information technology, which devalues quickly. For example, approximately 60 percent of corporate information technology budgets go toward replacement of outdated equipment and product upgrades.⁴³

THE DATA:

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Index Home | Introduction
SECTION I | SECTION II | SECTION III
Productivity Paradox | Knowledge Economy
Nine Myths | Data Sources | Endnotes | The Authors

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