Gross fixed capital formation is the measurement of increases or decreases in the total amount of durable goods in a certain territory for a period of time.
Gross fixed capital formation is a macroeconomic concept that measures the value of fixed assets acquired or produced in a period determined by both the public and private sectors.
In other words, it encompasses both companies, families and state agencies. For this reason, it is necessary to point out that the calculation to be carried out for its study commonly covers national elements, whether or not they operate within the territorial limits of a country.
For example, if a Murcia company acquires industrial machinery in Oceania, it would be considered a Spanish fixed capital increase. Another frequent example is that of oil extraction companies or other natural resources outside their borders.
This phenomenon is also known with the acronym FBCF or its Anglo-Saxon denomination, Gross Fixed Capital Formation.
Relevance of the measurement of gross fixed capital formation
Its importance is great at the level of economic study, and more specifically in the macroeconomic field, because the gross formation of fixed capital is considered as one of the main components of the investment . Therefore, it is part to take into account for the estimation of the GDP of a territory.
The FBCF can be a useful tool when studying or analyzing the economic situation at a given time for a country, through the observation of the level of investment in new goods or the reinvestment and transfer of previous goods, as well as their consumption .
Characteristics to consider about gross fixed capital formation
A particularly important fact is that the calculation of gross capital formation excludes the activity of buying and selling land, since the estimation of the value of a given land does not affect the entire land of a country.
Yes, it is included the purchase and sale of homes, commercial premises and other types of construction as fixed assets.
On the other hand, changes in inventories are also included in the total calculation . This means that increases or decreases in the amount of durable goods not classified as fixed capital are taken into account.