| Code | NE.GDI.TOTL.ZS |
| Indicator Name | Gross capital formation (% of GDP) |
| Long definition | Gross capital formation includes acquisitions less disposals of produced assets for purposes of fixed capital formation, inventories or valuables. This indicator is expressed as a percentage of Gross Domestic Product (GDP) which is the total income earned through the production of goods and services in an economic territory during an accounting period. |
| Source | Country official statistics, National Statistical Organizations and/or Central Banks;
National Accounts data files, Organisation for Economic Co-operation and Development (OECD);
Staff estimates, World Bank (WB) |
| Topic | Economic Policy & Debt: National accounts: Shares of GDP & other |
| Dataset | WDI |
| Unit of measure | % |
| Periodicity | Annual |
| Aggregation method | Weighted average |
| Statistical concept and methodology | Methodology: National accounts are compiled in accordance with international standards: System of National Accounts, 2008 or 1993 versions. Specific information on how countries compile their national accounts can be found on the IMF website: https://dsbb.imf.org/
Statistical concept(s): The conceptual elements of the SNA (System of National Accounts) measure what takes place in the economy, between which agents, and for what purpose. At the heart of the SNA is the production of goods and services. These may be used for consumption in the period to which the accounts relate or may be accumulated for use in a later period. In simple terms, the amount of value added generated by production represents GDP. The income corresponding to GDP is distributed to the various agents or groups of agents as income and it is the process of distributing and redistributing income that allows one agent to consume the goods and services produced by another agent or to acquire goods and services for later consumption. The way in which the SNA captures this pattern of economic flows is to identify the activities concerned by recognizing the institutional units in the economy and by specifying the structure of accounts capturing the transactions relevant to one stage or another of the process by which goods and services are produced and ultimately consumed. |
| Development relevance | This indicator is related to the national accounts, which are critical for understanding and managing a country's economy. They provide a framework for the analysis of economic performance. National accounts are the basis for estimating the Gross Domestic Product (GDP) and Gross National Income (GNI), which are the most widely used indicator of economic performance. They are essential for government policymakers, providing the data needed to design and assess fiscal and monetary policies; and are also used by businesses and investors to assess the economic climate and make investment decisions. NAS enable comparison between economies, which is crucial for international trade, investment decisions, and economic competitiveness. More specifically, this indicator is related to the expenditure approach used to calculate GDP, which focuses on the total amount of spending on final goods and services within an economy over a specific period. Unlike the production approach, which looks at the supply side by summing the value of output produced by all sectors, the expenditure approach looks at the demand side by summing all expenditures. This demand-side analysis provides insights into the spending behaviors of different sectors, including households, businesses, the government, and foreign entities. Also, by breaking down expenditures into categories like consumption, investment, government spending, and net exports, it helps identify which components are driving or hindering economic growth. This approach can thus be used to assess the effectiveness of fiscal and monetary policies. Overall, the expenditure approach is crucial for understanding the dynamics of an economy, guiding policy decisions, and providing a comprehensive view of economic activity from the perspective of total spending. |
| Limitations and exceptions | Because policymakers have tended to focus on fostering the growth of output, and because data on production are easier to collect than data on spending, many countries generate their primary estimate of GDP using the production approach. Moreover, many countries do not estimate all the components of national expenditures but instead derive some of the main aggregates indirectly using GDP (based on the production approach) as the control total.
Data on capital formation may be estimated from direct surveys of enterprises and administrative records or based on the commodity flow method using data from production, trade, and construction activities. The quality of data on government fixed capital formation depends on the quality of government accounting systems (which tend to be weak in developing countries). Measures of fixed capital formation by households and corporations - particularly capital outlays by small, unincorporated enterprises - are usually unreliable.
Estimates of changes in inventories are rarely complete but usually include the most important activities or commodities. In some countries these estimates are derived as a composite residual along with household final consumption expenditure. According to national accounts conventions, adjustments should be made for appreciation of the value of inventory holdings due to price changes, but this is not always done. In highly inflationary economies this element can be substantial. |
| License URL | https://creativecommons.org/licenses/by/4.0/ |
| License Type | CC BY-4.0 |
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