RDP 2007-09: Private Business Investment in Australia Appendix D: Investment by Industry
September 2007
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The aggregate investment share (Figure 4) depends on both investment shares within each industry and the distribution of output across industries. Table D1 looks at how these have changed over the past 20 years. Data limitations mean that public and private investment have to be combined, as do the property & business services and the finance & insurance industries (referred to as ‘property & finance’).[28]
| Average investment-to-output | Average industry output share | Contributions from changes in: | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Ii/Yi)t | (Yi/Y)t | (Ii/Yi)t | (Yi/Y)t | ||||||||
| 76–80 (%) | 02–06 (%) | Change (% pts) | 76–80 (%) | 02–06 (%) | Change (% pts) | (% pts) | (% pts) | ||||
| Agriculture | 48.4 | 32.8 | −15.5 | 6.8 | 3.5 | −3.2 | −0.8 | −1.3 | |||
| Mining | 29.6 | 43.1 | 13.5 | 4.8 | 5.5 | 0.7 | 0.7 | 0.3 | |||
| Manufacturing | 12.7 | 19.0 | 6.3 | 20.6 | 12.0 | −8.6 | 1.0 | −1.4 | |||
| Property & finance | 19.8 | 14.6 | −5.2 | 10.9 | 20.3 | 9.4 | −0.8 | 1.6 | |||
| Other market | 22.4 | 19.0 | −3.4 | 35.6 | 36.9 | 1.3 | −1.2 | 0.3 | |||
| Other non-market | 15.2 | 11.6 | −3.6 | 21.3 | 21.8 | 0.5 | −0.8 | 0.1 | |||
| Total | 20.6 | 18.3 | −2.3 | 100.0 | 100.0 | −1.9 | −0.5 | ||||
|
Notes: ‘Other market’ includes electricity, gas & water supply; construction; wholesale trade; retail trade; accommodation, cafes & restaurants; transport & storage; communication services; and cultural & recreational services. ‘Other non-market’ includes government administration & defence; education; health & community services; and personal & other services. Sources: ABS; authors' calculations |
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Between 1976–1980 and 2002–2006, the aggregate nominal investment share has declined modestly (by 2.3 percentage points), though this probably reflects to some extent the period being considered, with the general trend over time being fairly flat. Some key industry trends are apparent – namely, the decline in the output shares of the agriculture and manufacturing industries, while the property & finance industry has expanded. The effects of these compositional changes on the aggregate investment share have largely been offsetting (accounting for only 0.5 percentage points of the fall).
The industries using computers relatively intensively – namely property & finance, other market and other non-market industries – have all recorded falls in ratios of nominal investment to output, probably reflecting the effects of falling computing equipment prices (consistent with this conclusion, equivalent ratios of real investment to output for these industries have risen). The falls in nominal (gross) investment-to-output ratios occurred despite these industries recording the largest increases in their depreciation rates (Table D2), also reflecting an increased use of computing equipment with its relatively high depreciation rate.[29] The fall in the investment-to-output ratio for agriculture largely reflects falls in the price of livestock investment.[30] Against these trends has been a rise in the nominal investment-to-output ratios in the mining and manufacturing industries. While most industries have reported an increase in the capital intensity of production (over the period as indicated by the capital-to-labour ratio; Table D2), these increases have been greatest for mining and manufacturing. With regards to its overall importance for investment, the decline in the size of the manufacturing industry has largely been offset by its trend towards using more capital-intensive techniques.
| Capital-to-labour ratios, real, 1975/76 = 100 | |||||
|---|---|---|---|---|---|
| 1975/76 | 1985/86 | 1995/96 | 2005/06 | ||
| Agriculture | 100.0 | 108.5 | 105.8 | 146.6 | |
| Mining | 100.0 | 131.4 | 226.5 | 228.1 | |
| Manufacturing | 100.0 | 134.3 | 178.8 | 246.6 | |
| Property & finance | 100.0 | 121.7 | 140.3 | 159.7 | |
| Other market | 100.0 | 124.3 | 122.3 | 137.2 | |
| Other non-market | 100.0 | 100.1 | 97.8 | 100.8 | |
| Total | 100.0 | 122.6 | 129.8 | 149.4 | |
| Depreciation rates (real, annual, per cent) | |||||
| 1975/76 | 1985/86 | 1995/96 | 2005/06 | ||
| Agriculture | 13.1 | 11.8 | 12.2 | 10.1 | |
| Mining | 6.6 | 6.8 | 7.2 | 7.8 | |
| Manufacturing | 10.1 | 10.4 | 11.0 | 12.0 | |
| Property & finance | 3.3 | 4.0 | 4.2 | 6.0 | |
| Other market | 5.0 | 5.3 | 5.6 | 6.3 | |
| Other non-market | 3.4 | 3.5 | 4.2 | 5.8 | |
| Total | 5.8 | 5.8 | 6.1 | 6.9 | |
| Note: For industries included in ‘other market’ and ‘other non-market’, see notes to Table D1. Sources: ABS; authors' calculations | |||||
Footnotes
The private sector represented between 65 and 80 per cent of total investment over
most of this period, and the private sector dominates the behaviour of the
four main industries identified for total investment above. On a separate
issue, the aggregate investment share can be decomposed as follows: 
.
There are a number of choices for weights; here, w1i
= (Yi,t/Yt + Yi,0/Y0)/2
and w2i = (Ii,t/Yi,t
+ Ii,0/Yi,0)/2
are used, where 0 denotes the base period.
[28]
The depreciation rate for computing equipment is 40 per cent compared to around 11 per cent for non-computing equipment (in 2005/06). [29]
The depreciation rate for agriculture reflects the declining share of livestock investment, with livestock having a depreciation rate of around 27 per cent compared to 7.7 per cent for other types of agricultural investments (in 2005/06). [30]