A basic gross private investment definition is the amount of private business capital that's invested in domestic production through the purchase of fixed property or inventory – the calculation of which, measures gross private domestic investment (GPDI). This is an aggregate of all the various forms of capital investments accumulated within that country’s economy for one year. If you would like to find the data used to make this calculation, you can easily get it from the National Statistics Authority. But what, exactly, are these forms of capital?
The manufacturing sector in the country will have manufactured some new goods over the period. These new manufactured resources will be purchased by businesses around the country. That purchase represents a capital investment by these businesses and so will be considered in the final calculation. The kind of manufactured goods includes equipment and machinery that will go toward improving the profitability of these businesses.
Real Estate Property
Land is one of the three principle resources in economics: land, labor and capital. It, therefore, makes sense that when a business undertakes the purchase of a piece of property, whether developed or not, it will have made a capital investment. This investment will be considered in the final calculation as well.
New construction has happened across the country. There are all kinds of construction, including office buildings, residential apartments for families, houses for single families and more. The value of this new construction is figured into the calculation.
Increase or Decrease in Inventory
The first step is to look at the increase or decrease in inventory in businesses over the year. In this case, the initial figure for inventory for all the businesses in the country is taken at the beginning of the year and the final inventory is taken at the end of the year. The amount by which the inventory has increased or decreased is then determined.
A good example of this would be a food manufacturer. In this business, you avoid looking at the inventory or any works-in-progress and instead focus on the finished goods. That would be the food products that have been completely processed and packaged, ready for sale. Depending on how the prevailing economic conditions were that year, that figure may be negative or positive.
The next item to consider is the capital investment made by businesses. These are items which have not been purchased for resale but to generate value for the business. They include various software, tools, machinery used for manufacturing, office equipment and more.
GDPI: The Final Total
Once you have all three items – real estate, inventory and manufacturing – simply add them up and you will get the figure for the new capital invested by private businesses in the given year. That is the country’s gross private domestic investment.