The role of investments in the development of the national economy

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THE ROLE OF INVESTMENTS IN THE DEVELOPMENT OF THE NATIONAL ECONOMY

Turdimatov Yigitali Murotali o 'g 'li - Student,

ACCOUNTING AND AUDIT DEPARTMENT, MANAGEMENT IN PRODUCTION FACULTY, FERGANA POLYTECHNIC INSTITUTE, FERGANA, REPUBLIC OF UZBEKISTAN

Abstract

The article under discussion depicts the development of the national economy, factors influencing the economy's prosperity and the role of investments in enhancing the growth of the economy. The author of the article discusses four basic considerations which foster growth and bring opportunities for investments.

Keywords: economy, national, development, improve, politicians, industrialization, economists, westernization, concept, academic, industrial, investments.

Economic development is the process in which a nation is being improved in the sector of the economic, political, and social well-being of its people. The term has been used frequently by economists, politicians, and others in the 20th and 21st centuries. The concept, however, has been in existence in the West for centuries. "Modernization, "westernization", and especially "industrialization" are other terms often used while discussing economic development. Economic development has a direct relationship with the environment and environmental issues. Economic development is very often confused with industrial development, even in some academic sources.

Whereas economic development is a policy intervention endeavor with aims of improving the economic and social well-being of people, economic growth is a phenomenon of market productivity and rise in GDP. Consequently, as economist O'Sullivan points out, "economic growth is one aspect of the process of economic development" [1, p.p. 34-58].

The scope of economic development includes the process and policies by which a nation improves the economic, political, and social well-being of its people. The University of Iowa's Center for International Finance and Development states that: “Economic development' is a term that economists, politicians, and others have used frequently in the 20th century. The concept, however, has been in existence in the West for centuries. Modernization, Westernization, and especially Industrialization are other terms people have used while discussing economic development. Economic development has a direct relationship with the environment”. [2, p.p. 55-59].

There are many factors influencing the growth of the national economy, one of them is investments. Investment influences the rate of economic growth because it is a component of aggregate demand (AD) and more importantly influences the productive capacity of the economy (LRAS). Investment means expenditure on capital spending, e.g. buying new machines, building bigger factories, buying robots to enable automation.

Investment is a component of Aggregate Demand (AD). Therefore, if there is an increase in investment, it will help to boost AD and short-run economic growth. If there is spare capacity, then increased investment and a rise in AD will increase the rate of economic growth. If investment is effective then it should also increase the productive capacity of the economy. For example, investing in skills and education can increase labour productivity. Investment in new technology and capital can increase productivity and the productive capacity of the economy; this helps to shift long-run aggregate supply (LRAS) to the right. An increase in LRAS is essential for long-term economic growth; it can increase economic growth without inflation. If investment leads to a significant increase in productivity then - it can lead to an increase in the long run trend rate of economic growth. Investment can lead to higher real GDP without inflation [3, p.p. 61-67].

Evaluation of the role of investments in the development of the national economy:

• It depends on the type of investment. For example, misplaced government investment in improving industrial capacity could be inefficient and fail to increase productivity in the economy. Private sector investment or investment from overseas may be much more effective in actually increasing productivity as private firms have more knowledge about most effective types of investment.

• However, some countries may have supply-constraints in public goods - roads, bridges, infrastructure. These public goods will not be provided fully by the free-market; therefore, it may require government investment to overcome the supply bottlenecks. For example, congestion on the roads is a major constraint for business and economic activity.

• In the long term, investment is important for improving productivity and increasing the competitiveness of an economy. Without investment, an economy could enjoy high levels of consumption, but this creates an unbalanced economy. There will tend to be a current account deficit and little investment in future growth prospects.

Generally, there are four basic considerations which foster growth and bring opportunities for investments. These are legal safeguards, stable currency and existence of financial institutions to aid savings and forms of business organization.

Investment decisions have become significant as people retire between the age of 60 and 65. Also, the trend shows longer life expectancy. The earnings from employment should be calculated in such a manner that a portion is put away as savings. Savings by themselves do not increase wealth; these must be invested in such a way that the principal and income will be adequate for a greater number of retirement years.

The importance of investment decisions is enhanced by the fact that there is an increasing number of women are working in organizations. Men and women will be responsible for planning their own investments during their working life so that after retirement they are able to have a stable income. Increase in the working population, proper planning for life span and longevity have ensured the need for balanced investments.

Taxation is one of crucial factors in any country which introduces an element of compulsion in a person's savings. There are various forms of savings outlets in our country in the form of investments which help in bringing down the tax level. These are discussed under availability of investment media.

The level of interest rates is another aspect which is necessary for a sound investment plan. Interest rates vary between one investment and another. These may vary between risky and safe investments; they may also differ due to different benefit schemes offered by the investments.

These aspects must be considered before allocating any amount in investments. A high rate of interest may not be the only factor favouring the outlet for investment. The investor has to include in his portfolio several kinds of investments.

Every developing economy is phased with the problem of rising prices and inflationary trends. In India, inflation has become a continuous problem since the last decade. In these years of rising prices, several problems are associated coupled with a falling standard of living. Before funds are invested, erosion of the resources will have to be carefully considered in order to make the right choice of investments. economy investment income financial

The investor will try and search an outlet which will give him a high rate of return in the form of interest to cover any decrease due to inflation. He will also have to judge whether the interest or return will be continuous or there is a likelihood or irregularly.

Investment decisions have assumed importance due the general increase in employment opportunities in India. The stages of development in the country have accelerated demand and a number of new organizations and services have increased. Jobs are available in new sectors like software technology; business processing offices, call centers, exports, media, tourism, hospitality, manufacturing sector, banks, insurance and financial services. The employment opportunities gave rise to increasing incomes.

More incomes have increased a demand for investments in order to bring in more income above their regular income. The different avenues of investments can be selected to support the regular income. Awareness of financial assets and real assets has led to the ability and willingness of working people to save and invest their funds for return in their lean period leading to the importance of investments.

Thus, the objectives of investment are to achieve a good rate of return in the future, reducing risk to get a good return, liquidity in time of emergencies, safety of funds by selecting the right avenues of investments and a hedge against inflation [3, p.p. 61-67].

References

1. O'Sullivan A. and Sheffrin S.M. Economics: Principles in Action. Pearson Prentice Hall, Upper Saddle River, New Jersey. 2003. P.p. 34-58.

2. Conteras R. "How the Concept of Development Got Started" University of Iowa Center for International Finance and Development. P.p. 55-59.

3. Schumpeter Joseph & Backhaus Ursula. The Theory of Economic Development. New York. P.p. 61-67.

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