Working Paper: CEPR ID: DP870
Authors: Magnus Blomstrom; Robert E. Lipsey; Mario Zejan
Abstract: This paper examines shares of fixed capital formation in GDP and rates of economic growth for more than 100 countries over successive five-year periods between 1965 and 1985 to determine the direction of causality between them. Simple regressions and multiple regressions including several standard determinants of growth, as well as a simple causality test, provide more evidence that increases in growth precede rises in rates of capital formation than that increases in capital formation precede increases in growth. High rates of fixed capital formation accompany rapid growth in per capita income, but we find no evidence that fixed investment is the only or main source of ignition for economic growth.
Keywords: investment; economic growth
JEL Codes: 040; 050
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fixed capital formation (E22) | economic growth (O49) |
| economic growth (O49) | fixed capital formation (E22) |