Skip to main content Skip to Search Box

Definition: investment from Dictionary of Accounting

the placing of money so that it will produce interest and increase in value.

○ They called for more government investment in new industries.

○She was advised to make investments in oil companies.


A share, bond or piece of property bought in the hope that it will produce more money than was used to buy it

‘…investment trusts, like unit trusts, consist of portfolios of shares and therefore provide a spread of investments' [Investors Chronicle]

‘…investment companies took the view that prices had reached rock bottom and could only go up’ [Lloyd's List]

Summary Article: Investment
from Encyclopedia of Governance

Investment has been defined by the Organisation for Economic Co-operation and Development (OECD) as all assets owned or controlled by an investor, either directly or indirectly. Investment in a national economy, business, or household tends to be portrayed as a progressive and prudent activity for the future, to be contrasted with consumption, which is often seen as the use or squandering of scarce resources for imprudent and short-term gratification.

Investment can be subdivided between public investment by governments and state-owned corporations and private investment by companies, individuals, and households; between domestic investment, accounting for more than ninety percent of total investment in most economies, and foreign investment; between physical or tangible investment in the fixed infrastructure, such as roads, railways, and telecommunications, and human or intangible investment in education, skills, and knowledge; and between direct investment in physical assets and portfolio investment in a range of assets, including stocks, shares, and other financial products.

Investment tends to be measured in quantitative terms. The total amount of public and private investment, as a percentage of national income, is often used as a proxy measurement of international competitiveness and comparative national economic performance. In 2003, whole economy investment among the Group of 7 industrialized economies stood at an average of 17.8 percent of gross domestic product (at current prices). Investment is also measured by its rate of return, profitability, or income yield.

The World Bank has noted the importance of government policies for creating a good investment climate. The bank has also identified a huge range of factors, shaped by governments and public policies, that may affect the pattern of investment in a given territory, including macroeconomic stability, regulation and taxation, the security of property rights, the functioning of capital and labor markets, and broader governance features, including the predictability and credibility of policy and the level of corruption.

The framework of international agreements governing investment is extremely extensive. The UN Conference on Trade and Development has calculated that by the end of 2003, more than 2,200 bilateral investment treaties and nearly 2,300 double taxation agreements had been signed by 176 countries in an attempt to promote investment. In addition to such national and bilateral arrangements, investment is also governed by regional and supranational frameworks, such as Chapter 11 of the North American Free Trade Agreement and the rules governing the European Union (EU)’s Single Market, and international agreements, such as the World Trade Organization (WTO)’s General Agreement on Trade in Services (GATS). Under the GATS, WTO members are required to treat services and their providers on an equally favorable basis, in accordance with the principle of most-favored nation (MFN). However, attempts to extend this principle into the global governance of investment have previously proven to be highly controversial. In May 1995, the OECD commenced negotiations to create the Multilateral Agreement on Investment (MAI). The MAI proposed granting national treatment and MFN status to all investors, requiring investors to be treated exactly the same irrespective of their country of origin. The MAI also included provisions for direct investor to state dispute resolution, which would have given foreign investors and transnational corporations the opportunity to directly sue governments for compensation, where they could prove the principle of equal treatment of investors had been violated. Because the MAI appeared to raise the rights of investors to a par with, or beyond, those of citizens and their democratically elected governments, the MAI was vigorously opposed. The OECD abandoned negotiations on the MAI in April 1998.

The liberalization of international finance, following the trend toward the abolition of capital controls from the mid-1970s, has seen an increasing role played by private investment, particularly foreign direct investment (FDI), in growth, trade, and development. Global FDI inflows peaked at US$1.4 trillion in 2000, before falling by forty-one percent to $818 billion in 2001, by a further seventeen percent to $679 billion in 2002, and by another eighteen percent to $560 billion in 2003. Despite this huge volatility, FDI remains a vital source of investment for development. In 2004, developing countries attracted an estimated $255 billion of FDI inflows, raising their total FDI stock to $2.5 trillion. The scale of private investment flows to developing economies now vastly exceeds those provided by public institutions. For example, since its establishment in 1945, cumulative lending by the World Bank has totaled $394 billion, providing $20.1 billion of new investment in 245 projects during fiscal 2004.

The reliance on private investment may have major consequences for both individual investors and even the most powerful national economies given the increasing proclivity for volatility and contagion in liberalized markets. For example, when new Japanese loans of $295 billion to investors in the property sector between 1985 and 1990 helped fuel a speculative rise in asset prices, the Japanese stock market witnessed a rise in the Nikkei 225 Index from 10000 in 1985 to a peak of 38916 on December 19, 1989. When the “bubble economy” collapsed thereafter, and the Nikkei Index imploded to 20222 by October 1, 1990, the trauma to investor confidence in the world’s second-largest economy was sufficient to reduce average annual Japanese growth from the four percent of 1981 through 1990 to only 1.4 percent from 1991 to 2000.

    See also
  • Keynesianism; Public Investment; Social Democracy; World Bank

Further Readings and References
  • Organisation for Economic Co-operation and Development. (1998). The multilateral agreement on investment. Paris: OECD, Directorate for Financial, Fiscal and Enterprise Affairs.
  • United Nations Conference on Trade and Development. (2004). World investment report: The shift towards services. New York and Geneva: United Nations.
  • World Bank. (2004). World development report 2005: A better investment climate for everyone. Washington, DC: Author.
  • Simon Lee
    Copyright © 2007 by SAGE Publications, Inc.

    Related Articles

    Full text Article investment
    Webster's New World Finance and Investment Dictionary

    A commitment of dollars for a period of time with the expectation or hope of receiving future payments that will cover any inflation and...

    Full text Article Loans and Investments
    Handbook of United States Economic and Financial Indicators

    [Also referred to as Bank Loans, Investments, and Reserves; see also Commercial and Industrial Loans Outstanding, Weekly Reporting Large...

    See more from Credo