NCPA - National Center for Policy Analysis

U.S. Invests More By Broader Measures

July 19, 1998

How much the U.S. is investing depends on one's definition of investment, economists point out. While the U.S. is said not to invest as much as other countries, it has actually invested more than the average for rich countries -- when the term is broadly defined.

As reported in the national accounts, investment includes only spending on physical capital. But if investment is defined as spending which has the potential to raise physical output, then a number of additional categories can be included.

A recent study by Milka Kirova of St. Louis University and the National Bureau of Economic Research's Robert Lipsey attempts to track down this missing investment.

  • America's spending on education -- excluding money for buildings and equipment -- from 1990 to 1994 was 6.6 percent of Gross Domestic Product (GDP), compared to an average of 5.6 percent among 12 other wealthy countries.
  • For the same period, the U.S. invested 2.7 percent of GDP in research and development -- against an average of 2.1 percent for the other rich nations.
  • If consumer durables, such as a car or computer, are counted as capital, they constituted 6 percent of GDP over the term -- against 5.4 percent in the other countries.
  • In the 1990 to 1994 period the U.S. spent 1.3 percent of GDP on military hardware -- as opposed to an average of 0.5 percent among other countries.

When these elements are added to the narrower measure of "investment" and adjustments are made for price differences between countries, total investment would increase to around 35 percent of GDP in the U.S. -- just above the average of 33 percent for the 12 other wealthy countries.

Experts say America has probably pulled even further ahead in the past year, given the capital spending surge during the latest expansion.

Source: "Investigating Investment," Economist, July 18, 1998.


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