What is the difference between gross capital accumulation and net capital accumulation? Which is the better indicator of growth?

Gross capital accumulation refers to the total amount of investments made in an economy within a specific period. These investments include the purchase of new capital goods such as machinery, equipment, and buildings, as well as additions to inventories.

Net capital accumulation, also known as net investment, refers to the remaining amount of investments after accounting for capital goods replacement due to wear and tear or obsolescence. In other words, it is the difference between the gross capital accumulation and depreciation on existing capital goods.

The main difference between gross capital accumulation and net capital accumulation is that the former includes all investments made in an economy, while the latter considers only the investments that contribute to an increase in the productive capacity of the economy. Gross capital accumulation does not consider the depreciation of existing capital goods, whereas net capital accumulation takes depreciation into account.

To determine which indicator is better for measuring growth, we must consider the significance of depreciation in long-term economic growth. Depreciation represents the replacement of worn-out or obsolete capital goods, which does not contribute to an increase in the economy's productive capacity. Net capital accumulation, by taking depreciation into account, gives a better representation of the amount of new investment contributing to the expansion of an economy's productive capacity. This makes net capital accumulation a more relevant and accurate measure of economic growth compared to gross capital accumulation. In conclusion, while both gross capital accumulation and net capital accumulation are important indicators of investment in an economy, net capital accumulation is generally considered a better indicator of long-term economic growth since it accounts for depreciation.