This paper examines the relationship between equipment investment and economic growth, using data from the United Nations Comparison Project and the Penn World Table. It finds that machinery and equipment investment has a strong association with growth: over 1960–1985, each percent of GDP invested in equipment is associated with an increase in GDP growth of 1/3 of a percentage point per year. This association is much stronger than that found between growth and other components of investment. The paper argues that this association is causal, with higher equipment investment driving faster growth, and that the social return to equipment investment in well-functioning market economies is on the order of 30 percent per year. The paper provides quantitative evidence supporting the traditional view that machinery investment is a prime determinant of national productivity growth. It demonstrates a strong statistical relationship between national rates of machinery and equipment investment and productivity growth. Equipment investment has far more explanatory power for national productivity growth than other components of investment and outperforms many other variables in cross-country growth equations. High rates of equipment investment can account for nearly all of Japan's extraordinary growth performance. The paper also addresses the issue of causality in the relationship between equipment investment and growth. It suggests that the pattern of equipment prices supports the claim that fast-growing countries are those with favorable supply conditions for producers' equipment, not those where some third factor has accelerated growth and shifted the demand curve for producers' equipment outward. The timing of the relationship between equipment investment and growth, the effects of alternative sources of variation in equipment investment on productivity growth, and the differential association of equipment investment with that part of GDP growth generated by rising productivity and that part generated by an increasing labor force are also examined. The paper also discusses the relationship between our results and previous arguments suggesting the unimportance of capital formation, and considers the normative implications of our findings. It concludes that equipment investment is more closely related to growth than are other components of investment, and that the social return to equipment investment in well-functioning market economies is on the order of thirty percent per year.This paper examines the relationship between equipment investment and economic growth, using data from the United Nations Comparison Project and the Penn World Table. It finds that machinery and equipment investment has a strong association with growth: over 1960–1985, each percent of GDP invested in equipment is associated with an increase in GDP growth of 1/3 of a percentage point per year. This association is much stronger than that found between growth and other components of investment. The paper argues that this association is causal, with higher equipment investment driving faster growth, and that the social return to equipment investment in well-functioning market economies is on the order of 30 percent per year. The paper provides quantitative evidence supporting the traditional view that machinery investment is a prime determinant of national productivity growth. It demonstrates a strong statistical relationship between national rates of machinery and equipment investment and productivity growth. Equipment investment has far more explanatory power for national productivity growth than other components of investment and outperforms many other variables in cross-country growth equations. High rates of equipment investment can account for nearly all of Japan's extraordinary growth performance. The paper also addresses the issue of causality in the relationship between equipment investment and growth. It suggests that the pattern of equipment prices supports the claim that fast-growing countries are those with favorable supply conditions for producers' equipment, not those where some third factor has accelerated growth and shifted the demand curve for producers' equipment outward. The timing of the relationship between equipment investment and growth, the effects of alternative sources of variation in equipment investment on productivity growth, and the differential association of equipment investment with that part of GDP growth generated by rising productivity and that part generated by an increasing labor force are also examined. The paper also discusses the relationship between our results and previous arguments suggesting the unimportance of capital formation, and considers the normative implications of our findings. It concludes that equipment investment is more closely related to growth than are other components of investment, and that the social return to equipment investment in well-functioning market economies is on the order of thirty percent per year.