Abstract:
Investment for growth and development Investment is central to growth and sustainable development. It expands an economy’s productive capacity and drives job creation and income growth. Domestic firms undertake most investment, but the international investment can provide additional advantages beyond its contribution to the capital stock. It can serve as a conduit for the local diffusion of technology and expertise by creating regional supplier linkages and providing improved access to international markets. The Framework interprets investment in its broadest sense. Investment can take many forms, from physical assets to human or intellectual capital. It can add capacity or simply improve the efficiency of existing assets, such as through a change of ownership. Under the right conditions, it raises overall output both through factor accumulation and by introducing new techniques and processes which boost productivity and ultimately the country’s standard of living. Investment should not be seen as an end in itself. Indeed, some sectors and economies may suffer from a surfeit of investment at specific points in time, resulting in excess capacity and wasted resources. Investment might also flow into sectors that do not provide sufficient productive or social benefits or cause environmental degradation. The growth and development impact of investment will depend as much, if not more, on the quality of the investment as it does on the quantity. Like the notion of investment, the concept of the climate for investment should be interpreted broadly. A good investment climate helps mobilize capital, skills, technology, and intermediate inputs to allow firms to expand. It helps to channel resources to more productive uses. Competitive pressure and the discipline imposed by shareholders and creditors ensure that all firms strive to improve their efficiency and allow inefficient ones to exit. It should allow enterprises to invest productively and profitably, but it is not just about reducing the cost of doing business and raising corporate profitability. It should also ensure that investment brings about the highest possible economic and social impact. The Framework includes the critical policy areas contributing to a healthy investment climate that meets the needs of both investors and society more broadly. Each set of policies influences investors’ decisions and the social and economic returns through several channels. Understanding why these policy areas were selected and how they interact with the investment climate requires understanding how investment contributes to the growth and raises living standards through productivity improvements.
