January, 2017

Economic Calculation and the Productivity of Investment

  • Benjamin Powell

    Professor of Economics, Texas Tech University
  • Gonzalo Macera

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Find the paper at online at DeGruyter.

This paper explains why institutional quality impacts the productivity of investment. The existing empirical literature finds that a given level of investment creates more economic growth in more economically free countries. We draw on insights from Austrian economics, particularly the economic calculation debate and associated knowledge problems, to provide a theoretical explanation for why entrepreneurs are able to better value investment opportunities in more economically free countries which, in turn, leads to higher economic growth.