Equipment investment and the Solow model

This paper investigates the correlation between equipment investment and economic growth, ind its compatibility with the Solow growth model The paper improves on previous work by starting from an explicit theoretical model, using recent data on human capital, taking a rigorous approach to outliers, using instrumental variables, and taking unobserved heterogeneity into account. Rates of return to investment, and their precision, are estimated. The main finding is that die implied returns to equipment investment are very high in developing countries.