Transnational corporations, capital formation and economic growth

One of the most widely accepted principles in the analysis of economic growth is that countries should devote substantial efforts to increasing the quantity and improving the quality of their stock of physical capital. An emphasis on the contribution of capital to growth is, of course, not new. It was central to nineteenth century classical political economy. The Harrod-Domar growth model of the 1940s, which provided intellectual stimulation for several generations of thinking on the subject of economic growth, gave central importance to increasing the share of output a country devoted to savings and transformed into physical capital. Empirical work on economic growth has built upon the growth accounting framework introduced by Robert Solow and extended by Edward Denison and others. This empirical literature has increasingly emphasized the importance of technology and human capital, while the stock of physical capital continues to play a large role as a component of growth for both developed and developing countries.

Related Subject(s): International Trade and Finance
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