China is a country where a high rate of capital investment as a % of GDP has been a key driver of fast growth over the last twenty years
Evidence for this is provided in the chart above and it shows that capital spending as a % of GDP grew from less than 30% in the 1970s to over 40% in the mid-1990s – rising further still since 2000. In most advanced OECD countries it is now around 20-25% of GDP or less.
A rise in capital spending will have important effects on both the demand and supply-side – including a positive multiplier effect on national income.
Limits to investment-driven economic growth
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