What factors determine the level of investment in your country?
- The level of infrastructural development: well laid and developed social economic infrastructure encourages the level of investment is it is easier to transport raw materials to the factory and finished goods to the market
- The level of interest rate. When the rate of interest rate is low, it becomes cheaper for investors to borrow money from financial institution leading to increased investment.
- Availability and size of the market. Presence of big size market for output encourages investment
- The level of income. Increase in level of income increases the level of saving leading to increase in level of investment
- Political stability increases the confidence and level of investment
- Business expectations. When there is expectation of income boom, the level of investment increases.
- Marginal efficiency of capital. This refers to the expected return from employing additional unit of capital. The high the marginal efficiency of capital the higher the level of investment.
- The amount of liquid assets available to the investor. Physical assets cannot be invested alone. Therefore investors need to have additional liquid assets (cash) to buy raw materials as well as rewarding other factors of production. Thus the more liquid assets available the higher the level of investment.
- Invention and innovation. These normally reduce average cost of production as well as introducing new fashions and products that increase marketability of output. This increases the level of investment
- The government policy. This can take the form of taxation as well as subsidization. When the government offer subsidies to investor and tax holidays, the level of investment increases.
- The need to develop new products such as in telecommunication; increase the level of investment.
- Wage costs; if wage costs are rising rapidly, it may create an incentive for a firm to try and boost labour productivity, through investing in capital stock.
- Depreciation; Some investment is necessary to replace worn out or out-dated equipment.
- Population growth; high population provide market and labour required for investment
CATEGORIES Economics
TAGS Dr. Bbosa Science
