What it is, and all about it:
Definition: Capital formation is the process of increasing the stock of real capital in an economy.
Components: It involves the accumulation of physical and financial assets, such as machinery, buildings, and investments.
Sources: Capital formation primarily comes from savings and investments made by individuals, businesses, and the government.
Investment: The saved money is typically invested in productive activities, like businesses, infrastructure, and technology.
Economic Growth: Capital formation is crucial for long-term economic growth, as it enhances productivity and efficiency.
Job Creation: Increased capital stock often leads to the creation of more jobs and higher employment levels.
Development: Developing countries often focus on capital formation to improve their infrastructure and industrial capabilities.
Financial System Role: A well-functioning financial system is vital for effective capital formation, facilitating the flow of funds from savers to investors.
Policy Implications: Governments may implement policies to encourage savings, investments, and a conducive business environment to promote capital formation.
Long-Term Impact: The effects of capital formation are felt over the long term, contributing to sustained economic progress.