Capital Investment: A Neglected Issue

Ciaran Driver and Paul Temple

Chapter 4 in The Unbalanced Economy, 2012, pp 71-86 from Palgrave Macmillan

Abstract: Abstract The lack of concern for capital investment among UK policymakers is to some extent puzzling because, as noted in Chapter 2, it provided a mainstay of economic beliefs up to the 1980s, and remains important for growth theory. What exactly are many economists objecting to when they criticize the ‘exaggerated belief in the importance of promoting investment’ (Crafts 1991, p.89)? At one level the argument is hard to follow because there is a clear correlation between investment and other inputs that are indeed thought to be important. According to Crafts himself, any long-run success of 1980s policies was limited, because of the neglect of training and technology solutions ‘for which the present (Conservative) government has a distaste’ (p.95). But saying this, while dismissing the importance of capital investment, requires a convoluted argument. What does promoting investment mean if not associated acceleration in technology and training? Are firms likely to invest in irreversible expensive equipment without ensuring that it can be well used? Is not one of the obstacles to such investment that workers can be poached after training? And what is technology but a broad form of irreversible investment? The correlations between forms of investment are high. For example, the correlation between training and machinery equipment and software is 0.39 for manufacturing and 0.58 for services (Bulli 2008, Tables 3 and 4).

Keywords: Foreign Direct Investment; Cash Flow; Capital Investment; Investment Decision; Real Option (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-27179-2_4

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DOI: 10.1057/9781137271792_4

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