Discuss the extent to which an increase in investment is the most important factor in increasing economic growth in a country of your choice.
‘Discuss the extent to which an increase in investment is the most important factor in increasing economic growth in a country of your choice.’
Introduction (150 max)
Gilesspie (2016:426) define that the investment as ‘‘Investment occurs when firms make a decision to allocate resources into projects that will generate future returns’’. Begg and Vernesca (2020: 374) define that the economic growth as ‘’Economic growth refers to the increase in the capacity of an economy to produce goods and services over time.’’ The purpose of this report is to examine the level of invesments in the UK and determine to what extend is invesment affect the economic growth in the UK and evaluate examples of invesments to the UK government. It will start by introducing invesment and forms of it. Then actual and potantial economic growth with role of investment in aggregate demand and productivity. It will then argue the case for thhe main driver of economic growth is investment and the opposite of the case. It will finally give three country examples that affects economic growth in the UK.
Investment and economic growth (500)
(Black et all Oxford dictionary ) defines investment as ‘’the process of adding to stocks of real productive assets’’. Individuals invest with purchased goods for future expected benefits. There is three types of investment such as; gross investment , depreciation investment and net investment. Gross investment is the total investment in an economy while depreciation investment is maintain the level of equipment and machinery. Net investment is increase the capital stock in the economy (Gilesspie 2016:427). Investment can take various forms such as ICT to improve technological equipments and or Research and Development (R&D) to produce new technological knowledge or develop existing systems. If a government is succesful enough to influence the level of aggregate demand with the level of investment, economic growth also influence positively from it (Gilesspie 2016: 426). A well targeted investment in an economy plays a key factor on the level of growth. For example, efficently targeted infrastructure is shown to have economic benefits by raising economic growth and productivity (Seidu et al.). Improving infrastructure will not give directly growth but it may improve trade and the connections between sides of the trade therefore economic growth.
‘’The percentage increase in national output (real GDP) from one period to the next is known as actual economic growth.’’.(Sloman and Garratt 2016:234).
. Economic growth is caused by the increase in aggregate demand (AD). And in the economy increase in AD cause the increase in the level of real GDP.
Increased consumer demand. Investment is to provide extra capacity. This will only be necessary, therefore, if consumer demand increases. The bigger the increase in consumer demand, the more investment will be needed. (sloman and garatt page 212)
AD=C+I+G+(X-M)
The percentage increase in national output (real GDP) from one period to the next is known as actual economic growth. When statistics on growth rates are provided, they are referring to real growth.(Sloman and Garratt 2016:234).
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Gilesspie 2016 sayfa 430.
Ease of doing business
Infrastructure think again
Exports
Examples of relationship between investment and economic growth in the UK
(Black et al Oxford dictionary) defines trade as ‘The exchange of goods between two individuals or nations. Trade is the basic component of economic activity and is undertaken for mutual advantage’. Trade is one of the key factors affecting a countries economy positively. International trade is an important part of the government’s plan for growth and prosperity (BIS 2010:8). It can be clearly seen from the figure 2 that between 2000 and 2008 there was an outsanding increase in total trade of exports in the UK.
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Foreign direct investment (FDI) aimed to get benefits from long-term commintment. According to conventional economic theory, exchange rate movements have a neutral effect on the rate of return for foreign investors, because a depreciation of the host country’s currency lowers the amount of foreign currency required to purchase the asset while also lowering the nominal return received in the foreign currency (BIT 2010:90).
