Machinery & equipment investment and growth: evidence from the Canadian manufacturing sector

Tahir Abdi

Applied Economics, 2008, vol. 40, issue 4, 465-478

Abstract: New Growth Theory points to three potential influences on output and productivity growth-investment in human capital, R&D and investment in machinery and equipment (M&E). However, much of the literature focuses on human capital and R&D as sources of growth. Few efforts have been made to estimate the impact of M&E investment. This article presents empirical models that endeavour to fill this gap. Using panel data on 20 Canadian manufacturing industries (1961-1997) and time-series data (1961-2000) for the entire Canadian manufacturing sector, this article finds that the elasticities of output with respect to M&E capital stock and M&E investment are well above capital's share of national income suggested by a constant-returns-to-scale Cobb-Douglas production function. However, the coefficient on labour is near its income share. The results also suggest that M&E investment is not the only source of growth because the elasticity of output with respect to structures investment is also well above its income share, indicating the possible existence of complementarities between the two types of capital.

Date: 2008
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DOI: 10.1080/00036840600690215

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