Equipment Investment and the Solow Model

Jonathan Temple

Oxford Economic Papers, 1998, vol. 50, issue 1, 39-62

Abstract: This paper investigates the correlation between equipment investment and economic growth, and its compatibility with the Solow growth model. The paper improves on previous work by starting from an explicit theoretical model, using recent data on human capital, taking a rigorous approach to outliers, using instrumental variables, and taking unobserved heterogeneity into account. Rates of return to investment, and their precision, are estimated. The main finding is that the implied returns to equipment investment are very high in developing countries. Copyright 1998 by Royal Economic Society.

Date: 1998
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