Investment: The Forces Determining Investment in the Principal Sectors

R. C. O. Matthews, C. H. Feinstein and J. C. Odling‐Smee

in British Economic Growth 1856-1973

Published in print October 1982 | ISBN: 9780198284536
Published online November 2003 | e-ISBN: 9780191596629 | DOI:

Series: Studies of Economic Growth in Industrialized Countries

 Investment: The Forces Determining Investment in the Principal Sectors

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The general tendency was for capital accumulation in a sector to be high when its rate of growth of output was high, whether because of rapid TFP growth or rapid growth in demand, in line with the acceleration principle. Capital accumulation thereby acted as a reinforcer of growth arising from other sources. A case in point was the generally rapid rate of capital accumulation in the post‐war period compared with earlier. However, there were many other factors that contributed to the considerable differences in the paths over time of capital accumulation in the principal sectors (manufacturing, commerce, utilities and other infrastructure, dwellings). Among these were each sector's normal degree of capital intensity and the extent of capital‐saving technical progress, the availability of labour, the pressure of foreign competition, wartime arrears, overshooting, the government's role, and the timing of changes in the supply price of finance between sectors. Differences between peacetime periods in the rate of aggregate capital accumulation were generally much smaller than differences in sectoral rates of capital accumulation. This may imply some crowding‐out or crowding‐in though it is doubtful whether investment in manufacturing would have been much higher if investment in dwellings or infrastructure had been lower, since there were usually contrary reasons on the marginal efficiency of investment side. But in periods when industrial investment was low, the cost of finance was eased for investment in dwellings and infrastructure.

Keywords: commerce; dwellings; infrastructure; investment by sector; investment efficiency manufacturing; utilities

Chapter.  18344 words.  Illustrated.

Subjects: Economic History

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