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Gross fixed capital formation (GFCF) is a macroeconomic concept used in official national accounts since the 1930s. Macroeconomics is the study of the entire economy in terms of the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the general behavior of prices. ...
Measures of national income and output are used in economics to estimate the value of goods and services produced in an economy. ...
Concept and data
The statistical aggregate of GFCF is a measure of the net new investment by enterprises in the domestic economy in fixed capital assets. Fixed capital is a concept in economics and accounting, first theoretically analysed in some depth by the economist David Ricardo. ...
While it is not possible to measure the value of the total fixed capital stock very accurately, it is possible to obtain a fairly reliable measure of the trend in new fixed investment.
Usually statistics departments provide quarterly and annual data on GFCF, which function as economic indicators of the level of business activity. Wikipedia does not yet have an article with this exact name. ...
Often detailed breakdowns are available on request for GFCF, by type of asset and economic sector (for example, residential buildings versus non-residential buildings, or government sector versus private sector).
Obviously though, GFCF is not a measure of total investment, because all kinds of financial assets are excluded. If, for example, one examines a company balance sheet, it is easy to see that fixed assets are only one component of the total annual capital outlay. Investment is a term with several closely-related meanings in finance and economics. ...
In politics a capital (also called capital city or political capital — although the latter phrase has an alternative meaning based on an alternative meaning of capital) is the principal city or town associated with its government. ...
Definition GFCF is a flow value. It is usually defined as the total value of additions to fixed assets by resident producer enterprises, less disposals of fixed assets during the quarter or year, plus additions to the value of non-produced assets (such as discoveries of mineral deposits, or land improvements). FLOW is a J-Pop group. ...
Normally these assets are tangible assets, but in some cases they are intangible intellectual property including artwork and software. The debate continues about the exact definitional boundaries. The main asset types are plant & machinery, equipment, vehicles, land-improvements and buildings. In law, particularly in common law jurisdictions, intellectual property or IP refers to a legal entitlement which sometimes attaches to the expressed form of an idea, or to some other intangible subject matter. ...
Some important assets are typically excluded from the official measure of GFCF. These include armaments and military installations, the value of repair work, the value of standing timber, farm animals, and durable household equipment.
Detailed standard definitions of GFCF are provided by the United Nations System of National Accounts (UNSNA) and the IMF Balance of Payments system. The definitions used by the US Bureau for Economic Analysis for the National Income & Product Accounts (NIPA's) are very similar.
GFCF is called "gross" because the measure does not make any adjustments for the depreciation of assets. In some ways, this terminology is confusing, because, in substance, the aim is to measure the value of the net additions to the fixed capital stock. In other words, it is the net capital formation that is of interest. Accidental damage and destruction are disregarded in the valuation, but tax levies and acquisition fees are included in GFCF. So it is the "all-up" costs of fixed investment that are being measured. Declining-balance depreciation of a $50,000 asset with $6,500 salvage value over 20 years. ...
It is sometimes difficult to draw an exact statistical boundary between GFCF and intermediate consumption, insofar as the expenditure concerns alterations to fixed assets owned. In some cases, this expenditure can refer to new fixed investment, in others only to operating costs relating to the maintenance or repair of fixed assets. Intermediate consumption is an economic concept used in national accounts, such as the United Nations System of National Accounts (UNSNA) and the US National Income and Product Accounts (NIPA). ...
Time series GFCF time series data is often used to analyse the trends in investment activity over time, deflating or reflating the series using a price index. But it is also used to obtain alternative measures of the fixed capital stock. This stock could be measured at surveyed "book value", but the problem there is that the book values are often a mixture of valuations such as historic cost, current replacement cost, current sale value and scrap value. That is, there is no uniform valuation. In statistics and signal processing, a time series is a sequence of data points, measured typically at successive times, spaced apart at uniform time intervals. ...
Fixed capital is a concept in economics and accounting, first theoretically analysed in some depth by the economist David Ricardo. ...
A stock, also referred to as a share, is commonly a share of ownership in a corporation. ...
In accounting terminology, historical cost describes the original cost of an asset at the time of purchase or payment as opposed to its saleable value, replacement value or value in present or alternative use. ...
Using the alternative of the so-called "perpetual inventory method", one begins with a benchmark asset figure and then cumulates GFCF year by year (or quarter by quarter), while deducting depreciation according to some method, all data being adjusted for price inflation using a capital expenditure price index. Sometimes statisticians calculate "average service lives" for assets as a basis for valuation and depreciation estimates. Declining-balance depreciation of a $50,000 asset with $6,500 salvage value over 20 years. ...
Econometrists acknowledge that the value of fixed assets is almost impossible to measure accurately, because of the difficulty of obtaining a standard valuation for all assets. By implication, it is also almost impossible to obtain a reliable measure of the rate of profit on capital invested, i.e. the rate of return. Arguably though, the data do provide an "indicator" of the trend over time. Valuation can mean: Valuation (finance) Valuation (mathematics) This is a disambiguation page — a navigational aid which lists other pages that might otherwise share the same title. ...
Profit is defined as the residual value gained from business operations. ...
References - UNSNA [1]
- NIPA [2]
- OECD [3]
- Canberra Stock Conference [4]
- Oskar Morgenstern, On the Accuracy of Economic Observations, 2nd edition, Princeton University Press, 1965.
- Hill, TP (1979), Profits and Rates of Return. OECD, Paris.
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