The recent literature on the sources of economic growth has challenged the traditional growth accounting of the Solow model, which assigned a relatively limited role to capital deepening. As part of this literature, De Long and Summers have argued in two papers that the link between equipment investment and economic growth across countries is stronger than can be generated by the Solow model. Accordingly, they conclude that such investment yields important external benefits. However, their analysis suffers from two shortcomings. First, De Long and Summers have not conducted any formal statistical tests of the Solow model. Second, even their informal rejection of the model fails to survive reasonable tests of robustness. We formally test the predictions of the Solow model using De Long and Summers' data. Our results cast doubt on the existence of externalities to equipment investment. In particular, we find that the empirical link between investment and growth in the OECD countries is fully consistent with the Solow model. Moreover, for De Long and Summers' full sample, the evidence of excess returns to equipment investment is tenuous.

A large body of literature has been published showing that the social returns to investment in equipment are low and insignificant in the OECD countries in the post-war period. The work reported in this paper re-examines the nexus between economic growth and investment in equipment and structures using data for 11 OECD countries over 130 years and for 22 OECD countries over 40 years. The empirical results suggest that the social returns to investment in equipment substantially exceed their private returns in the OECD countries in both the pre-war and the post-war periods.

Using data from the United Nations Comparison Project and the Penn World Table, we find that machinery and equipment investment has a strong association with growth: over l9 &)?l95 each percent of GDP invested in equipment is associated with an increase in GDP growth of 1/3 a percentage point per year. This is a much stronger association than found between growth and any of the other components of investment. A variety of considerations suggest that this association is causal, that higher equipment investment drives faster growth, and that the social return to equipment investment in well functioning market economies is on the order of 30 percent per year.

Investment is crucial to the development of a nation's economy and welfare. In contrast to the United States, investment in Europe has been quite modest over the past few years. This volume gathers together a number of papers by prominent researchers in the field of investment. It provides an overview of recent developments in this area and presents new empirical findings on the determinants and implications of the investment process in European countries. Topics include: role of taxation, uncertainty and the financial systems, as well as the relevance of corporate governance to the investment process. Two chapters are dedicated to infrastructure investment and foreign direct investment.

The financial crisis in advanced economies and its impact on developing countries has put the longer term agenda of development – structural transformation of countries, of their growth, jobs, poverty and distribution – on the analytic and policy backburner. Day to day management of macro fundamentals in the global economy and the labour market have consumed decision makers with faltering GDP growth, soaring unemployment, and a resurgent threat of deflation. Without understanding and addressing the structural constraints and imbalances underpinning such global problems, the world economy is doomed to experience an increasing number of crises and emerging dualisms between countries. The aim of this book is to bring back a balance to the development debate by re-focusing on the structural development challenges faced by developing countries. The book develops a coherent analytical framework supported by a large body of new empirical evidence linking three core dimensions – the structure of growth, employment, and their macro drivers. Then, for each of these dimensions and relationships a variety of effective policies are also identified and elucidated with the added granularity of country cases.

The IFC's new Global Agriculture Series features sectoral presentations of industry trends with specific emphasis on the developing countries. The series highlights the increasing importance of developing countries in the world economy as rapidly expanding markets and as competitive production bases. The information reported underlines the strong production assets of those countries and illustrates the investment opportunities this creates. To profile the high-growth poultry industry, the first volume in this series draws on intelligence collected from various public and private sources, including IFC client companies in numerous countries. Consumption of poultry meat has been growing at an exceptional rate over the past decade, spurred by the dietary benefits of this food and an attractive price relative to other meats. Its evolution in recent years epitomizes the emergence of developing countries as global competitors in the agribusiness sector. This report estimates that annual world consumption might grow by another 15-18 million tons by the end of the decade, making poultry the most popular meat in the world. This growth should support additional investments of roughly US$2 billion during this period, including US$0.7 to $0.9 billion for growers' production facilities and US$1 to $1.2 billion for integrators' production facilities. Estimates project that much of this investment will be undertaken in developing countries. The report presents an overview of the poultry production system and the key players in the supply chain, the global poultry market and regional production patterns, the main determinants of competitive advantage in this sector, and an analysis of international trade flows. The final chapter reviews the role of public policies in changes in consumption, production, and trade. Additonal features include color photos, charts, and tables

The enhanced access of developing countries to the international financial market since the seventies has been characterized by boom-bust cycles of unfettered external borrowing followed by abrupt financial crises. The first chapter analyzes the macroeconomic effects of volatile capital flows to a developing country. The analysis shows that investment, consumption, and the current account deficit depend positively on the expected availability of external finance. If international investors may unexpectedly decide to reduce their exposure to financial assets issued by the country, the optimal cost of external borrowing should exceed the interest rate paid by domestic residents in the international financial market. In the absence of insurance markets for this type of risk, a tax on capital inflows can be optimal. Recent endogenous growth models characterize a firm's technology as a commodity which is both partly excludable and associated with some production inputs, such as human capital and equipment. The second chapter explores the nature of the link between equipment investment and technology at the plant level in a large sample of Colombian manufacturing establishments. The results support the endogenous growth model's notion that technology is associated with the production inputs. Larger plants that invest more in machinery and equipment and employ higher levels of human capital tend to be more efficient. Models of investment with non-convex costs of adjustment predict that microeconomic time series of investment may be characterized by infrequent investment spurts and prolonged periods of little or no investment. In the third chapter I study the pattern of investment at the plant level in different categories of capital goods. As in the U.S., plant-level investment in Colombia is lumpy, and the probability of observing a large investment episode depends positively on the time elapsed since the latest large investment episode. As a contribution to the literature, I propose and implement two alternative econometric methods for the estimation of a simple model of irreversible investment. The results show that increases in the real exchange rate (pesos per dollar) have a consistently negative effect on investment, regardless of the type of capital good.