Investment

Investment is perhaps the key structural component of spending since it lays down the basis for future production. It covers spending on factories, machinery, equipment, dwellings and inventories of raw materials and other items. Investment averages about 20% of GDP in the industrialised countries, but before the economic crisis in Asia some countries there had investment of over 30% of GDP.

Investment is normally referred to as gross fixed investment, or gross fixed capital formation. This is because it is gross of depreciation (ie. even investment which replaces worn out or scrapped capital is counted). Gross investment (gross capital formation) is fixed investment plus stockbuilding (building up of inventories). Investment is called capital formation to distinguish it from financial investment (such as purchases of equities).

By convention, only businesses invest. All personal spending is consumption for national accounts purposes, except the purchase of new dwellings. These have such a long life that they are classed as investment. Most government spending, including that on defence equipment, is classified as consumption.