i guess a) NEW house b) buying shares in a domestic company in an IPO c) investment in a personal business , eg taxi driver buying a NEW taxi, shop owner buying his shop or renovating it

what about paying for school for kids? (improvement of human capital)?

what about land improvement, eg building a parking lot, or new apartment building ,

what about in farming, is maintenance = investment? eg is putting in fertilizer investment?
i guess that maintenance is not investment , only IMPROVEMENT could be investment. eg trucking in better quality soil would be investment ?


1 Answer 1


The terms investment and capital are highly confusing because they are different in everyday language and in economics.

Definitions in economics:

  • Investment is the purchase of any (new) capital goods.
  • A capital good is any good that is used to produce other goods.
  • A good is anything that satisfies human wants.

(a) By convention, a house counts as a capital good, the idea (or fiction) being that it generates a stream of housing services over time. Hence, the purchase of a new house counts as investment.

(b) A share in a company does not count as a capital good, because it cannot be used to produce other goods and services.

(c) A taxi driver buying a NEW taxi and a shop-owner buying a NEW shop both count, because as in (a), the idea is that these goods in turn generate a stream of taxi/retail services over time.

The use of fertilizer counts as intermediate consumption (i.e. the use of intermediate goods in the production of other goods and services).

Generally, major improvements to existing buildings also count as investment. So a shop-owner renovating his shop, building a parking lot, a new apartment building all count.

However, ordinary maintenance and repairs do not count as investment (they instead count as intermediate consumption). As you can probably guess, in practice this gets tricky because it can be difficult to distinguish between a "major improvement" and an "ordinary repair". (See UN SNA 1.56.)

Paying for improvements in human capital does not count as investment. (See UN SNA 1.54 and 1.55, which also discusses how like you, many argue that this should count as investment, but right now, by convention, it does not. Schooling counts as consumption, while training by companies counts as intermediate consumption. Perhaps in future editions of the SNA it will be counted as investment.)

  • $\begingroup$ surely (b) buying shares in an IPO IS Investment! since it is injecting money into a business as such improving the financials of the business. if it is not investment then what is it? And that is bizarre that paying for people to learn a trade, go to university, school etc would not be Investment , it must be! $\endgroup$
    – Randor
    Jan 8, 2019 at 8:41
  • $\begingroup$ @Randor: We'd call it financial investment instead. Which, confusingly, does not fall under our above definition of investment. $\endgroup$
    – user18
    Jan 8, 2019 at 8:45
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    $\begingroup$ @Randor If the business then uses the money to buy property or machinery then that counts as investment by the business (though not by the "investor") $\endgroup$
    – Henry
    Jan 8, 2019 at 8:47
  • $\begingroup$ so both a) buying shares in an IPO and b) paying for education are both Consumption ? $\endgroup$
    – Randor
    Jan 8, 2019 at 11:38
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    $\begingroup$ @Randor: (a) Buying shares in an IPO is merely a transfer payment and does not show up anywhere in C + I + G + X - M. (b) Yes, according to the UN SNA, paying for education is consumption. They mention that training by companies counts instead as intermediate consumption. I'm not sure what happens if a company pays for say your MBA. $\endgroup$
    – user18
    Jan 8, 2019 at 14:06

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