In developed countries, real investments in the economy are made using internal and external sources. In other words, investments can be of national and foreign origin. Both types of investment have a significant impact on the development of the country's economy and the degree of activity of attracting new capital. In this article, we will dwell on internal sources of investment.
main sources
What determines the level of investment from domestic sources? What influences in the first place? Consider the main sources of financing investments. On the scale of an entire country, the amount of total savings gives the sum of savings of the population, that is, individuals, organizations and the state itself. For example, ordinary people can save money for some serious purchases in the future. As a rule, this is real estate or road transport. Many save money on education.
Legal entities accumulate part of the profit for subsequent reinvestment in the business, and the government has the opportunity to accumulate subject to a surplus, that is, in a situation where budget revenues exceed its expenses. The total amount of all savings has a direct impact on the likely amount of domestic investment in the economy. So, part of the money is spent on consumption, and the remaining money is invested in development.
Internal sources
What are the main sources of investment for companies? First of all, this is profit. This source of investment is often used. Surplus profits can be used to further develop the business, expand production facilities or improve them to increase efficiency. It is those enterprises that use internal reserves to introduce new technologies and innovations that ultimately occupy leading positions in the market. Those who do not do this often become uncompetitive over time.
The use of profit as a source of investment has a downside. Often, one such resource is not enough for business development. And instead of resorting to other tools, organizations raise prices for manufactured products. This leads to a reduction in demand for it and, consequently, sales. The resulting difficulties with the sale of goods and services lead to a drop in production.
But the modern economic model of most developed countries makes it possible to use other domestic sources for investment. For example, a bank loan.
Bank lending
Bank credit in many economically developed countries is one of the main and affordable sources of investment. Of particular importance is long-term lending at a low interest rate. Such conditions reduce the burden on the borrower and give him enough time to develop his business, as well as bring the product or service to the market.
It should also be noted that the possibilities of bank lending as an investment tool are highly dependent on the development of the banking sector in a particular country, as well as on the general level of the economy and the predictability of the processes occurring in it. Economic instability and financial crises lead to unwillingness of banks to issue long-term loans. The interest rate rises, and investing in production using such a tool becomes problematic.
In a stable economy and banking, lending leads to an increase in the production of goods and services in the country as a whole, to an increase in microeconomic and macroeconomic indicators.
Other domestic sources of investment
Enterprises and the state also use such internal sources for investments as issue of securities, budget financing and depreciation charges. Let's consider each of them in more detail.
The issue of securities in economically developed countries has long been one of the main sources of attracting investment. With the help of this tool, many, even the largest, projects are financed. To obtain investment funds, the company issues securities. It can be stocks or bonds. These securities are publicly traded. Both individuals and legal entities can purchase them using their own free cash. With such an investment scheme, it is they who are the source of attracting the necessary finances, and they themselves become holders of the securities of a particular enterprise.
Budget financing
Another source of financing investments is the state budget. Such an investment is possible in a surplus. Then the budget can be used as an effective investment tool, directing funds to those programs and projects that are of national importance. At the same time, potentially profitable sectors of the economy can be financed from the budget. It should be emphasized that budget financing can be provided both on an irrevocable basis and as loans.
Depreciation deductions
Other sources of investment include amortization. They are used to compensate for the depreciation of fixed assets. In the process of manufacturing goods, equipment becomes obsolete and develops its resource. Therefore, such deductions make it possible to maintain the means of production in good condition. It should be noted that such an internal source of investment can be effectively used only in conditions of controlled and predictable inflation.