transfer of skills and learning. By 1985 more than 700 garment export manu-
facturing factories had emerged in Bangladesh. Rhee calls this the ‘catalyst
model of economic development’.
Key points
- Investment is defined as ‘the forgoing of present consumption in order to
create an asset that will generate an expected future return’. - Investment can be broken down into physical and human capital.
- It is important to distinguish between net and gross investment.
- Investment can impact on economic growth either directly through expand-
ing the capacity to produce, indirectly through facilitating the acquisition
of new technology, or through its influence in boosting demand. - Investment has a more significant and robust link with economic growth
than any other factor of production. - The investment–growth link is likely to be stronger in developing countries
and weaker than the productivity–growth link in developed countries,
owing to diminishing returns to investment. - There is no agreement on what policy measures are best to promote invest-
ment,some emphasize freeing the market,others that there is an important
role for a pro-active state to mobilize and allocate resources to investment. - There are important pre-conditions for the government of a developing
country to successfully promote productive investment. - There are many examples of failed efforts by governments to boost
investment. - Scholars like Karl Marx and John Maynard Keynes placed investment at
the centre of their work on economic development. - Some argue that Foreign Direct Investment is a useful/important means of
supplementing domestic investment,but others disagree.
78 Sources of Growth in the Modern World Economy since 1950