Capital formation improves the conditions and methods for the production of a country. Hence, there is much increase in national income and per capital income. This leads to increase in quantity of production which leads to again rise in national income. The World Bank tracks gross capital formation, which it defines as outlays on additions to fixed assets, plus the net change in inventories. Fixed assets include plant, machinery, equipment, and buildings, all used to create goods and services. Inventory includes raw materials and goods available for sale.Oct
Private investment measured by gross capital formation is positive and strongly significant. In fact a 1% variation of physical capital leads to an increase of 0.833% of economic growth. The decomposition of this capital shows a domination of fixed and movable assets.
