CAPITAL INPUTS

The introduction of new banking and finance services drove the increase in GFCF in the sector that began in the mid 1990s (figure 13.3). The disaggregation of GFCF demonstrates that firms began to invest heavily in computers and computer software in the late 1990s (figure 13.4) and that this investment continued to grow strongly through to the mid 2000s. GFCF in software, electrical and electronic equipment, and computers drove the growth in GFCF in the industry.

This changing nature in the delivery of financial services also suggests that fewer branches (buildings) may have been required to house the delivery of face-to-face services. Anecdotally this can be seen through the reduction in the number of branches, which is consistent with the decline in in non-dwelling construction through the early 2000s (figure 13.3). Non-dwelling construction's impact on capital services, as measured by the rental price weight, has declined from 60% in 1985-86 to 52% in 2005-06. Conversely, software has increased its rental price weight (figure 13.5) because of large volume increases in its productive capital stock.

From 1989-90 to 1997-98, average annual growth in capital services was around 3.7% per year. From 1997-98 to 2005-06, average annual growth in capital services accelerated to around 5% per year.

Much of the story in the growth in capital services is attributable to changes in the composition of GFCF, principally because of the short service lives of the types of assets increasingly purchased, particularly for computers and computer software. This contrasts with long lived assets, like land and some forms of construction, which deliver services proportionate to their stock over a far longer period. Growth in productive capital stock in figure 13.6 also reflects this. Figure 13.6 shows little growth in productive capital stock for most assets since the early 1990s, with the exception of the two technology assets. Changes in productive capital stock and asset rental price weight determine the industry capital services index.

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