Capital formation denotes the creation of produced assets used repeatedly in production and the accumulation of inventories within an accounting period, as recorded in the System of National Accounts (SNA). In national accounts statistics, gross capital formation equals gross fixed capital formation (GFCF) plus changes in inventories plus acquisitions less disposals of valuables, a definition standardized since the 1993 and 2008 SNA frameworks. According to the United Nations and partner organizations responsible for the SNA, this sequence is recorded in the capital account of the integrated accounts. See the UN’s updated SNA documentation on the capital account and capital formation components. United Nations Statistics Division.

Definition and scope
• Gross capital formation (GCF): total of GFCF, change in inventories, and net acquisitions of valuables for resident producers. The Australian national accounts concepts guide, consistent with SNA 2008, states these three categories explicitly and defines valuables as assets held primarily as stores of value (for example, precious metals and art). Australian Bureau of Statistics.
• Gross fixed capital formation: acquisitions less disposals of produced fixed assets intended for use in production for more than one year, including own-account production of assets (such as software or structures) and purchases of second‑hand assets. OECD’s indicator glossary emphasizes that non-produced assets like land are excluded and that data are compiled under SNA 2008. OECD.
• Changes in inventories: net additions or withdrawals of materials and supplies, work-in-progress, finished goods, military inventories, and goods for resale during the period, as specified in SNA 2008. Statistics Canada.
• Valuables: items acquired primarily as stores of value (for example, jewelry, art, precious metals) not used mainly in production or consumption. Australian Bureau of Statistics.

Gross versus net measures
National accounts distinguish gross measures from net measures by deducting Consumption of fixed capital (CFC), defined by SNA as the decline in the current value of the stock of fixed assets due to wear, obsolescence, and normal accidental damage during the period. Net capital formation equals GCF minus CFC. UN regional statistical guidance cites the SNA definition of CFC and its exclusions from catastrophic losses. UN ESCWA; Office for National Statistics (UK).

Measurement and indicators
• Indicators: A widely used series is “Gross fixed capital formation (% of GDP)” (code NE.GDI.FTOT.ZS) in the World Development Indicators, defined as acquisitions less disposals of fixed assets (including certain expenditures that add to non-produced assets) as a share of GDP. World Bank WDI Metadata.
• Data standards: OECD notes that countries compile GFCF according to SNA 2008, ensuring comparability of definitions across members. OECD.
• Capital stock estimation: Because capital formation is a flow, statistical offices derive stocks and CFC using the Perpetual inventory method, which cumulates past investment and subtracts depreciation using asset‑specific service lives and survival patterns. BEA describes PIM for U.S. capital stock and CFC estimation; UN guidance and glossaries provide consistent definitions. U.S. Bureau of Economic Analysis; UN ESCWA.
• Price and volume measurement: GFCF can be measured in current prices and volume terms (using deflators) to analyze real investment dynamics; measurement manuals detail valuation and service-life assumptions. OECD, Measuring Capital Manual.

Asset boundary and SNA 2008 updates
SNA 2008 broadened the fixed asset boundary to include research and experimental development (R&D) and reclassified weapons systems as capital when used in production for more than one year. OECD documentation summarizes that treating R&D as investment raised measured GDP levels on average across OECD members, and weapons systems are recorded within GFCF rather than intermediate consumption. OECD FAQ on SNA 2008 changes.

Capital formation in macroeconomic analysis
• Expenditure identity: On the expenditure side of GDP, domestic investment spending is captured by GFCF plus changes in inventories. The World Bank’s SDG metadata reiterates the composition of “gross capital formation (formerly gross domestic investment)” in this identity-based framework. World Bank SDG Metadata.
• Savings–investment relationship: In a closed economy, investment equals national saving; in open economies, investment need not equal domestic saving because cross-border capital flows finance gaps. The empirical literature initiated by the Feldstein–Horioka puzzle documented a high correlation between domestic saving and investment across countries in the 1960s–1970s, interpreted as limited effective capital mobility at that time; see the original study and subsequent reassessments. NBER Working Paper No. 310; Economic Journal, 1980; NBER Working Paper No. 22081.
• Growth theory: In the Harrod–Domar model, the warranted growth rate depends on the savings rate and the incremental capital–output ratio, linking sustained growth mechanically to capital formation. See Domar’s original formulation. Econometrica (1946). In the Solow–Swan model, higher investment raises the steady‑state capital–labor ratio and level of output per worker, while long‑run per‑capita growth stems from exogenous technological progress. Solow’s 1956 article formalized this framework. EconPapers record for Solow 1956. Endogenous growth theory (for example, Romer) emphasizes purposeful investment in knowledge and ideas, with implications for how capital formation interacts with R&D and human capital. NBER Working Paper No. 3210.

Financing, institutions, and policy
Capital formation is financed by retained earnings, domestic financial intermediation, public investment, and cross‑border flows such as Foreign direct investment. Empirical syntheses find that deeper financial systems ease external financing constraints and are associated with higher long‑run growth, highlighting the role of institutions in mobilizing savings into investment. NBER Working Paper No. 10766. UNCTAD’s World Investment Reports track FDI trends and policy developments that affect the scale and sectoral allocation of investment relevant to capital formation. UNCTAD World Investment Report 2024; UNCTAD World Investment Report 2025.

Statistical practice and comparability
International comparability of capital formation statistics rests on adherence to SNA methodology. OECD notes compilation under SNA 2008 across members for GFCF; WDI metadata detail time coverage and construction of the percent‑of‑GDP indicator. The UN SNA update process (toward the “2025 SNA”) maintains the capital account’s structure while refining classifications and guidance. OECD; World Bank WDI Metadata; United Nations Statistics Division.