How much do public and private sectors invest in physical and human capital? Towards a new classification of investments

Paczos, Wojtek ORCID: https://orcid.org/0000-0002-8129-0235, Sawulski, Jakub and Leśniewicz, Filip 2023. How much do public and private sectors invest in physical and human capital? Towards a new classification of investments. International Review of Economics and Finance 88 , pp. 1324-1336. 10.1016/j.iref.2023.07.010

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Abstract

Conventional wisdom says that today’s investment drives future economic growth. Recent research shows that returns on human capital investment can be higher than those on physical capital investment. Yet, national accounts classify human capital expenditures as consumption and only investment in physical capital is recognized as investment. We propose new classification methodology and apply it to the data on public and private expenditures in 28 EU countries. We find that human capital investment constitutes on average 11.1% of GDP, of which 8.8 p.p. come from public sector. Physical capital investment constitutes on average 20.6% of GDP, of which 17.6 p. p. come from private sector. Understanding investment in narrow sense may lead to excessive concentration on the expansion of physical capital at the expense of otherwise profitable human capital spending.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HA Statistics H Social Sciences > HB Economic Theory H Social Sciences > HJ Public Finance
Publisher:	Elsevier
ISSN:	1059-0560
Date of First Compliant Deposit:	3 September 2023
Date of Acceptance:	11 July 2023
Last Modified:	07 Oct 2023 17:13
URI:	https://orca.cardiff.ac.uk/id/eprint/162187

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