The investment-output ratio in growth regressions

Abstract

The investment-output ratio is often used as a regressor in empirical studies of economic growth, although Scott (1991) is the only serious proponent of its being theoretically appropriate to do so. Evidence is here adduced that when capital stock data are available they ought to be used in preference to investment data. In addition, many growth studies employ population data to proxy, rather poorly, a labour force variable, although no one has ever suggested that this is more than a pis aller. Evidence is presented here that this is an unsatisfactory procedure.