A Subtle and not Always Understood Link over 50 Years: A Note on Investment Rate and Economic Growth

Sebastián Katz (), Luis Lanteri () and Sebastián Vargas
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Sebastián Katz: Central Bank of Argentina
Sebastián Vargas: Central Bank of Argentina

Ensayos Económicos, 2007, vol. 1, issue 47, 7-62

Abstract: Devoting an increasing amount of resources to the investment process tends to be a common recommendation to promote a sustained economic growth. Curiously enough, according to growth neoclassical theory, the factor that determines growth in the long-term is technological progress rather than accumulation of physical capital. Proposing, on the contrary, that this accumulation plays a relevant role in long-term growth implies assuming that investment can generate increases in aggregate productivity, through externalities or other types of increasing returns related to such process, as it is stated by the new growth theory. However, these do not seem to be the elements being considered when stating that “investment is the key for growth” (as it is commonly expressed in economic policy debates). In this sense, it is not the purpose of this paper to reject this linkage. In fact, this article states that in the case of our economies, higher levels of investment and domestic saving can play a significant role in the consolidation of growth processes due to their contribution to macroeconomic sustainability. On the other hand, this note aims at recalling that, even though not necessarily applicable to the domestic economy (as it is quantitatively illustrated), there are potential situations of “dynamic inefficiency” that may be far from optimum from an inter-generational point of view.

Keywords: domestic saving; economic growth; investment; productivity (search for similar items in EconPapers)
JEL-codes: D9 E2 O3 O4 (search for similar items in EconPapers)
Date: 2007
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