Machines and the Economics of Growth

Aled ab Iorwerth

Working Papers-Department of Finance Canada from Department of Finance Canada

Abstract: This paper summarizes the literature on economic growth. This literature suggests that investment in machinery and equipment (M&E) could foster economic growth. But, because of the need to cover the fixed costs of innovating, price is higher than the marginal cost and there will be underinvestment in M&E in a perfectly competitive economy. Further arguments based on public finance are also made about why there may be underinvestment in M&E.

L’auteur fait un sommaire de la littérature sur la croissance économique. Cette littérature suggère que l’investissement dans les machines et les équipements puisse augmenter le taux de croissance économique. Mais parce qu’il y a des coûts fixes à innover, le prix des machines et équipements sera supérieur à son coût marginal et donc, dans une économie parfaitement concurrentielle, il y aura sous-investissement. L’auteur mentionne également d’autres arguments, fondés sur la recherche en économie publique, qui abondent dans le sens d’un sous-investissement en machines et équipements dans une économie en concurrence parfaite.

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