Investment

Investment, in economics, productive employment of resources (capital) or the transformation of savings into active wealth (capital formation); more commonly, use of funds to obtain dividends, for example, from corporate stock or government bonds.

savings Investment and the economy

Modern industry's large demands for capital funds are met in large measure by employing the savings of innumerable individuals, scattered over vast areas. The complex structure of available savings and planned investment is achieved through an elaborate system of institutions and intermediaries, including stock markets, investment banks, industrial finance corporations, and commercial banks. Thanks to the work of the economist J.M. Keynes, it is now understood that the relation between investment and saving is a fundamental determinant of the level of national income. Investment is now one of the prime areas of concern for governments seeking to influence or control the progress of their economies. Many economists see capital formation (investment) as being one of the major problems faced by underdeveloped countries seeking to industrialize. U.S. economist W.W. Rostow has suggested that if a nation can reach and maintain a minimum investment rate of 10% of its national product, it will be launched into sustained economic growth.

Foreign investment

Foreign investment can take 2 forms: portfolio investment, which is simply the purchase of the stock of foreign corporations, and direct investment, the establishment or expansion of a corporation in a foreign country, where the corporation is under the investor's control. U.S. foreign investment is mainly of the direct kind, the main areas of activity being Canada, Central and South America, and, increasingly, Europe.

See also: Economics.