Use in National Accounts Statistics
In the national accounts (e.g., in the United Nations System of National Accounts and the European System of Accounts) gross capital formation is the total value of the gross fixed capital formation (GFCF), plus net changes in inventories, plus net acquisitions less disposals of valuables for a unit or sector.
"Total capital formation" in national accounting equals net fixed capital investment, plus the increase in the value of inventories held, plus (net) lending to foreign countries, during an accounting period (a year or a quarter). Capital is said to be "formed" when savings are utilized for investment purposes, often investment in production.
In the USA, statistical measures for capital formation were pioneered by Simon Kuznets in the 1930s and 1940s, and from the 1950s onwards the standard accounting system devised under the auspices of the United Nations to measure capital flows was adopted officially by the governments of most countries. International bodies such as the International Monetary Fund (IMF) and the World Bank have been influential in revising the system.
Read more about this topic: Capital Formation
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