Capital formation, Microeconomics

Capital formation:

Growth Economists believe that accumulation of capital is one main source of growth of an economy. Emphasis is given to the accumulation of more capital per head (machines, factories, roads etc.). It should however be noted that mere accumulation of capital will not fuel growth. Unless there are areas of investment unexploited, productive capacity cannot be increased merely by increasing the stock of capital.Capital is also only one of the many productive factors of production. If it is increased relative to other factors of production its marginal efficiency falls (MEC).


Expansion of knowledge through science and engineering that leads to new inventions and innovations in production techniques play an important role in growth. Technology can either be developed internally or can be imported from other countries.

Posted Date: 1/3/2013 1:00:44 AM | Location : United States

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