When Investment Is a Large Fraction of GDP Output, as in China

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The Answer is If most output is consumption we can value that pretty easily; at the margin its value is worth what a consumer pays for the product or service when purchased. Investment goods are trickier - especially in China. Purchases of investment goods (like a new building) are often between "related parties" or government controlled entities and we are not fully confident that what is paid for these investment goods reflect true value. In the case of investment goods, we only understand its value as it yields benefits over many decades. Ideally, those benefits would be to consumers for sake of measurement. But if the benefits are too more users of investment, we are sort of "kicking the can down the road." Thus, when half of a country's GDP is devoted to investment, we can measure that in a quantity sense, but are measurement may misprice in terms of quality or true value.

When Investment Is a Large Fraction of GDP Output, as in China

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When Investment Is a Large Fraction of GDP Output, as in China

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