The Investment Sector

In economic theory, investment is a purchase of goods and services augmenting the capital stock.  Capital stocks by industry are imputed for SAM by assuming that the economy was initially in equilibrium and by using published values for average rates of return by industry.  Assuming a five percent depreciation rate, a gross investment value by destination of investment for the 92 industrial sectors of SAM is imputed.

These estimates of imputed gross investment are combined with an industry share matrix calculated from the most current (1997) BEA matrix of capital purchases by source and destination for the United States.  The share matrix is an ancillary file prepared along with this SAM. Combining the share matrix, which identifies how a dollar of gross investment made by an industry is distributed across the source industries, with the imputed gross investment estimates resulted in a matrix of investment demand by source. 

A series of assumptions are incorporated in the SAM investment calculations.  To the extent that the economy is not in equilibrium in the base year, the levels of investment will be misrepresented.  To the extent that the distribution of investment sources has changed since 1997, further misrepresentation is introduced.  However, the gains from reflecting with precision how an investment decision in one sector results in investment demand in other sectors would appear to outweigh these potential sources of error.