Define capital formation

Capital accumulation also increases with return from an investment. An individual or company can accumulate capital in various ways some of which include investment purchases and investment savings.

Define capital formation

In order to add capital stock, a country needs to generate savings and investments from household savings or based on government policy. Countries with a high rate of household savings can accumulate funds to produce capital goods faster, and a government that runs a surplus can invest the surplus in capital stock.

Gross Fixed Capital Formation Definition from Financial Times Lexicon

Examples of Capital Stock Production As an example of the production of capital stock, Caterpillar CAT is one of the largest producers of construction equipment in the world, and produces equipment that other companies use to create goods and services.

The firm is a publicly traded company, and raises funds by issuing stock and debt. When investors purchase stocks and bonds issued by corporations, the firms can put the capital at risk to increase production and create new innovations for consumers.

These activities add to the country's overall capital formation. How The World Bank Reports Capital Formation The World Bank works as a source of financial and technical assistance to developing countries, with an aim to end extreme poverty through its programs.

The World Bank tracks gross capital formation, which it defines as outlays on additions to fixed assetsplus the net change in inventories.

BREAKING DOWN 'Capital Formation '

Fixed assets include plant, machinery, equipment and buildings, while inventory includes works in process, which are partially completed goods that remain in production. The World Bank measures capital formation by assessing the change in net savings.

If the household savings rate is increasing, savers may invest the additional dollars, and purchase stocks and bonds. If more households are saving, the country may report a cash surplus, which is a positive sign for capital formation.Capital formation is the process of building up the capital stock of a country through investing in productive plants and equipments.


Capital formation, in other words, involves the increasing of capital assets by efficient utilization of the available and human resources of the country. The phrase capital city utilizes capital because it refers to a city, not to a building or group of buildings.

Capitol with a capital "C" refers to the particular building in Washington, D.C.

Define capital formation

where the U.S. Congress meets.

What is 'Capital Formation '

Gross fixed capital formation (GFCF) is a macroeconomic concept used in official national accounts such as the United Nations System of National Accounts (UNSNA), National Income and Product Accounts (NIPA) and the European System of Accounts (ESA). Definition of capital formation: Transfer of savings from individuals or households to the business sector; directly through investments or indirectly through bank deposits which are loaned out to firms.

Definition of capital formation: The transfer of savings from households and governments to the business sector, resulting in increased output and.

Capital formation means increasing the stock of real capital in a country. In other words, capital formation involves making of more capital goods such as machines, tools, factories, transport equipment, materials, electricity, etc., which are all used for future production of goods.

What is Capital Formation? definition and meaning