Investment as percentage of GDP

1. What does this benchmark show?

The benchmark shows the value of investment (Gross Capital Formation) in 2011 as a per-
centage of GDP at market prices, and is therefore a relative comparison of the value of in-
vestment. The larger the percentage, the larger the value of investment relative to GDP.
Large investment relative to GDP may be a sign that a country is catching up.

Investment is calculated as gross capital formation and includes investment in R&D. This
means that development of new technology is included in investment.

2. Why is this benchmark of relevance to a country’s international competitiveness?

Due to increased international competition it is necessary to invest in new equipment and
technology in order to stay competitive. Productivity gains from better machines and new
software and technology make it important for businesses to keep investing. New technolo-
gies and machines make production more efficient. Productivity gains that are larger than
those of other countries increase international competitiveness.

Investment in research and development which can be transformed into new smarter prod-
ucts will give the companies a competitive advantage.

3. Source and methodology

The data is extracted from IMF World Economic Outlook. Data is compiled by national sta-
tistical agencies. Investment as a percentage of GDP is calculated at market prices.
Investment as a percentage of GDP is defined as gross capital formation as a percentage of
GDP. Gross capital formation is a part of the expenditure approach to the National Account.
The data is collected according to the System of National Accounts, 2008 (SNA). The SNA is
an international definition of National Accounts and is used by IMF, OECD, UN, World
Bank and the EU.

Gross capital formation at market prices is defined as the sum of fixed capital formation
and changes in inventories. Fixed capital formation is the total value of acquisitions less
disposals of new or existing fixed assets. Fixed assets are produced assets such as machin-
ery, equipment, residential buildings, other buildings or structures that are used repeatedly
or continuously over several accounting periods, of more than one year. In addition, gross
capital formation also consist of intellectual property products which are the result of re-
search, development, investigation or innovation leading to knowledge that the developers
can market or use to their own benefit in production because use of the knowledge is re-
stricted by means of legal or other protection.

In the original definition of SNA from 1993 intellectual property products were not a part of
gross capital formation. Gross capital formation is the widest measure of investment, and
because it is collected for most countries in the world in a comparable way, it is the best way
of measuring the total investment in a country.

Source:
World Economic Outlook