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There is widespread
agreement among economists and economic historians that large
investments in fixed capital are strongly associated with rapid economic
growth, at least in the long run. It is much less clear whether
governments can induce or accelerate such growth by raising fixed
capital formation directly or must instead implement broader policies to
promote growth, which then induces high levels of capital formation.
Even Kuznets, the foremost proponent of the critical role of investment
in fixed capital, noted cases in which economic growth accelerated
<MI>before<D> a rise in capital formation. Abramovitz and
Denison also found that much economic growth could not be accounted for
by capital formation, whether conventionally defined or broadened to
include intangible forms. Other studies have focused on such economic
and political factors as the extent of trade and exchange controls,
openness to foreign investment, political stability and monetary policy.
The failure of many post-war economic development programmes based on
forced saving and high levels of public investment in capital also casts
doubt on the importance of investment in determining growth. |