Corporate 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.

An increase in investment should boost the economic growth within a community. For instance, Fort Mill, which is located just a stone’s throw away from Charlotte in northeastern York County, is regularly recognized as one of the fastest-growing municipalities in South Carolina. This growth can be put down to increased corporate investment and the positive benefits it has on the local economy.

From a business perspective, investing in your community, alongside others in your community, makes everyone care more and help more.

• What is Community Investing
• 5 Ways Community Investment Benefits Business
• How Businesses Can Invest in Their Communities For Economic Growth
• Some Challenges With Investing in Your Community
• 6 Companies Making a Big Investment in Their Communities
• Corporate Investment Definition
• What is The Effect of Investment to The Economy?
• What Are The 4 Types of Investment?
• Why Investment is Important For a Country’s Economic Development
• What Are Corporate Investments?
• Does Investing Help The Economy?
• What Are The Social Responsibilities of International Firms?
• What Are the Main Influences on a Country’s Economic Development?
• What Role Does Savings And Investments Playing in The Economy?
• How Can an Investment Increase in The Economy?
• What is The Role of Investment Banks?
• What is The Relationship Between Economic Growth And Economic Development?
• How Does Savings Affect Economic Development?

What is Community Investing

Community investing refers to direct investments into poor communities via community development banks, credit unions, loan fund and microfinance institutions.

Community investing is closely tied to socially responsible investing and focuses on economically improving disadvantaged communities by offering banking services and small loans to fund businesses, non-profit groups and affordable housing initiatives.

Read Also: Do Microfinance Companies Really Help Even the Poorest of the Poor?

Community Investment is a way in which an organisation can make a positive social impact, leading to strengthened relationships with the local community and an improved reputation for the organisation.

Community investing can have a real and immediate impact on the well-being of a community by increasing economic activity. Often it provides financial services to communities that have traditionally been underserved.

Investments can take the form of cash deposits in community banks, purchasing debt from nonprofit loans funds, and equity investments in real estate.

Specifically, CI puts investment dollars to work locally to provide safe and affordable housing, job opportunities, education, healthcare, financial counseling, child care and other essential community services.

It allows you to direct your investment dollars toward a specific community, often your own. CI also facilitates investment in underserved communities more broadly if there isn’t a specific community you want to focus on.

Institutions that provide community investing opportunities help individuals and businesses who otherwise couldn’t obtain financing, and in the long term allow people to help themselves.

According to the Forum for Sustainable and Responsible Investment, community investing is one of the many fast-growing areas of socially responsible investing.

5 Ways Community Investment Benefits Business

Corporations give hundreds of millions in capital and in-kind donations to domestic and international causes, increasingly aligning themselves with social issues, and even embedding sustainability right into their products.

And, whether or not every instance of giving is strategic, it’s proven to improve company reputation and correlate with business growth.

Six of the top seven reasons that large companies invest in their communities influence business development, as reported by Imagine Canada.

Although 50% of participants felt strongly that it’s just a good thing to do regardless of business return, 72% agreed that what is good for the community is also good for business and 51% agreed it was good for reputation.

Corporations that recognize their role in their local communities as institutions, employers, influencers and citizens stand to benefit in various ways. It’s a simple matter of tending to the issues in “your own backyard” and the positive outcomes it can have – corporate social responsibility. 

1. Spur Local Awareness

Creating and sustaining a positive reputation in the community is one way to promote your product or service and generate brand awareness. In the same way that advertising or PR dollars can be spent on awareness campaigns, community investment can target similar goals.

This may not translate to a new source of customers, per se, but does mean a new source of recognition.

2. Boost Employee Retention

Numerous studies point to the fact that employee engagement and corporate citizenship improve talent retention. A positive reputation among the local community can often translate to a positive reputation among the local professional community.

For most companies looking to attract the best and brightest of the now maturing millennial generation, corporate citizenship counts.

3. Build a Sustainable Community Investment Plan

One reason for the shift is that local philanthropy presents a sort of logistical advantage: businesses have more to offer than random capital investments.

The direct benefit to business is the ability to sustain a philanthropic role in the community without necessarily investing hard capital. Donations can include in-kind gifts of no-longer-needed items, pro-bono services or surplus products.

With a ‘portfolio’ of available donations, all of which benefit community organizations and causes in different ways, businesses can balance how much they invest and allocate resources strategically.

In fact, in-kind and pro-bono donations are becoming more popular choices for corporate community investments.

4. Garner Media Attention

Community organizations are always eager to thank donors, often using a variety of outlets to do so. It’s one of the ways that non-profits and charities nurture the relationship from their end and use even minor donations as an opportunity to spread awareness of their cause.

Companies often benefit from press releases, coverage in non-profit annual reports, mention in newsletters and invitations to events. The amount of media generated by a donation usually depends on how remarkable the donation is in size or kind although even small donations can yield results.

5. Nurture Strategic Relationships

Business development is synonymous with relationship development. Relationships are key to identifying new opportunities and overcoming challenges.

Who’s willing to go to bat for your business or your management team? Networking with the non-profit sector and encouraging other local businesses to participate in events and programs is a great way to establish and nurture relationships in an amiable, pressure-free setting.

This can also help develop a better relationship with businesses and non-profits overall to the betterment of the general community.

Community investment can translate into new sales. Depending on the business, the same community and organizations you engage may be those who can benefit from your offering.

For instance, pro-bono offerings from professional services can be a stepping stone to referrals or future work; the donation of service serves as both community benefit and a sort of ‘pilot project.’

In either case, you have the opportunity to showcase your specialization while participating in a good cause.

Main types of high-impact community investing:

• Community development banks or credit unions support job creation, affordable housing, small business, and healthy communities. They area a great alternative to conventional mega-banks that finance fossil fuel infrastructure, sweatshops, factory farms and other destructive industries.
• Community Development Loan Funds provide affordable financing for housing and economic development projects, cooperatives, and community-based nonprofit organizations. These loan funds are not insured, although they use grant money and loss reserves to help protect individual investors.
• Micro-enterprise Loan Funds provide small loans and training to entrepreneurs in the US and overseas to create economic development and jobs.
• Community Development Venture Capital Funds provide loans to businesses that are creating jobs in low-income communities.
• Pooled Investment Portfolios are a great option if you want to diversify your community investments. You invest through one large facility, which spreads the money out within a pool of institutions that serve many low-income areas in a variety of ways.
• Mutual Funds are collections of stocks and bonds that are managed by professional money managers, meaning that expert investors are doing the research to pick investments. Anyone can invest in mutual funds. Some socially responsible funds devote up to ten percent of their assets to community investing, and several even put 100 percent of their assets into underserved communities. With these funds, you can use your investment dollars to promote corporate responsibility and contribute to improving disadvantaged communities, while saving for your own retirement. These funds are not federally insured.

How Businesses Can Invest in Their Communities For Economic Growth

After seeing the benefits of corporate investment to your business, are you looking for ways to get started? Here are ten great ways a small business can give back to the local community.

Promote Local Businesses

One of the best ways to support your community is to help out other businesses in the area. Buy local as often possible and set aside an area of your website to link to your favorite local companies.

Cross networking with non-competing companies with similar markets helps you reach more people and help out other local business owners just like you–a win-win!

Participate in Holiday Food Drives

During the holidays, many businesses encourage employees to bring in unopened non-perishable canned and boxed foods that can be donated to local food banks.

This is a fantastic way to help you community, and it requires very little additional tie. You’ll only have to set aside a half hour or so just before Christmas to transport the items.

Sponsor a Youth Sports Team

Chances are someone on your staff has a child on a youth sports team. By finding a local team to sponsor, you’ll be able to help with the funds it needs and get publicity in exchange for your support. This is a simple way to help out with very minimal time investment.

Set Up a Collection Jar

This is a way to support your community with no time commitment. Simply choose a charity that is important to your team and collect money in a high-traffic area inside your business.

This is a great way that I have seen children be able to participate in their own way. You can teach them important values that will last with them for all time.

Hold a Contest

You can support your community while also encouraging your employees to have fun by holding a contest. Each employee chooses a local charity and instead of prizes, money goes to the charities chosen by the winners.

This was one of the most successful ways that I’ve been able to help some of the local charities around my business. Popular TV shows like the Apprentice and other shows have done this as well to help out charity organizations.

Sponsor an Event

Sponsoring a participant in a local marathon can be a great way to show support, especially if you can support your own employees who are participating in such events.

Adopt a Brick

Occasionally new civic buildings will offer local residents the option of purchasing a brick or stone, either on a walkway or building. Such a purchase gives you the opportunity to contribute to progress while also enjoying a little publicity.

Build a House

Organizations like Habitat for Humanity offer businesses the opportunity to participate in construction projects that benefit disadvantaged residents. The best thing about this type of volunteerism is that many builds are done on weekends.

Offer Your Skills

As a leader in your industry, you likely have an area of expertise that’s of value to others. Consider teaching classes on entrepreneurship to local residents or offer to teach a specialized skill that could be of value to those who have been out of the workforce for a while.

Encourage Employee Volunteerism

Many businesses are now encouraging employees to volunteer by offering paid time off for volunteering. A business can show its support for the community by giving employees a specific amount of time each month, quarter, or year for volunteer work, which boosts morale while also increasing a business’s community involvement.

Some of the biggest corporations on the planet allow a specific number of hours each year that are allotted to a company to volunteer at a charity of their choice.

As a vital part of your community, it’s important to regularly show support for the residents and businesses who support you. By researching various ways you can participate in local events and organizations, you will be able to come up with your own unique way of giving back to your local community.

Invest in a Community Development Bank

Instead of choosing one of the usual options for your checking and savings accounts, you could keep your money at a community development bank that lends to individuals and businesses that otherwise couldn’t get a loan.

Like traditional banks, community development banks are FDIC insured, but unlike traditional banks, they focus on serving a low- to moderate-income clientele.

You can find banks that the U.S. Treasury Department has certified as dedicating 60% or more of their services to low-income communities at the Community Development Financial Institution website.

Investing in agency bonds is another form of community investing. Agency bonds are issued by government agencies like Ginnie Mae and by government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac. These entities help provide housing to people who otherwise couldn’t afford it.

GSE bonds, which help fund Fannie Mae and Freddie Mac, are not government bonds, so they are not backed by the full faith and credit of the U.S. government like Treasury bonds are.

These GSEs are shareholder-owned corporations, and you should research their bonds and evaluate their credit risk as you would other corporate bonds. Agency and GSE bonds have inflation risk, like all bonds, and some have call risk.

However, they have relatively low credit risk. You’ll earn slightly better returns with these bonds than with Treasuries because of the additional risk, but unlike Treasuries, the interest is not tax deductible.

Some Challenges With Investing in Your Community

Community investing also has drawbacks. It can entail higher risk; you’re often investing in people and businesses that traditional lenders think are too risky to lend to.

Furthermore, your additional risk isn’t necessarily compensated with higher returns the way it would be in traditional investments.

CI also restricts your investment options, and many community investments are in vehicles that provide low returns, like savings accounts and government bonds.

To earn a high enough return to meet your long-term financial needs, you’ll need to broaden your exposure beyond these low-return investments. You can meet this need by investing in the stocks of companies with a strong community focus or by expanding your parameters to include the broader universe of socially responsible investments.

Many investors will find that it makes the most financial sense to pursue community investing in only a portion of their portfolios, but that doesn’t mean you have to choose investments that you’re morally opposed to in the remainder of your portfolio.

6 Companies Making a Big Investment in Their Communities

1. Microsoft Invests $500 Million into Affordable Housing in the Seattle Area

Microsoft made headlines in January 2019 for investing $500 million into affordable housing in the Seattle area, which is home to both Microsoft and Amazon.

Microsoft’s investment is the most ambitious effort by a tech company to date to address the inequality that has spread in communities where the industry is concentrated.

New construction will be a mix of homes affordable not only to the company’s non-tech workers, but also to teachers, firefighters, and other middle- and low-income residents.

As part of the investment, the company plans to lend $225 million at subsidized rates to preserve and build housing in six cities surrounding its Redmond, Washington headquarters, and it pledges $250 million toward low-income housing across the region.

The remaining $25 million will be grants for local organizations that work with the homeless, one issue in particular being legal aid for people fighting eviction.

2. Google Pledges to Invest $1 Billion in East Bay Area Housing Crisis

In another effort to address the affordable housing shortage, Google (parent company, Alphabet) has pledged to invest $1 billion in land and money to build homes in the San Francisco area.

As part of the plan, the company will repurpose at least $750 million worth of commercially zoned property that it owns over the next 10 years, working with local governments to allow developers to lease the land and build homes.

Google also intends to create a $250 million investment fund to provide incentives for developers to create more affordable homes in the area.

3. Prudential Financial Will Invest $180 Million to Support Opportunity Youth

Prudential Financial is committing more than $180 million through 2025 to support young people ages 15 to 29 worldwide who lack access to school, training, or regular jobs.

“Businesses like ours have a role to play in ensuring that global economic progress benefits all members of tomorrow’s workforce,” said Prudential Chairman and CEO Charles Lowrey in a press release from the company.

“Our goal is to improve young people’s lives by creating pathways for them to achieve financial wellness, strengthen their communities, and ultimately help drive the global economy,”

The money will help young people across the globe – a population often referred to as opportunity youth – gain the right skills to compete for and succeed in quality jobs. This population segment, which accounts for 350 million people, represents untapped potential for the future workforce.

4. Salesforce Puts Up $18.2 Million to Support Bay Area Schools

Salesforce recently announced $18.2 million in grants to the San Francisco and Oakland school districts and education nonprofits to expand educational opportunities for students and leaders in the Bay Area.

The money, in part, will help develop new science curriculum, begin college preparation for first-generation college students as early as middle school, provide pathways for non-teaching staff in Oakland to acquire teaching credentials, and support the housing, food, legal, and medical needs of students new to the United States.

Salesforce employees also have pledged 100,000 volunteer hours in education for the current school year.

With this announcement, the software company’s global education investment now totals more than $90 million.

5. JPMorgan Chase Invests $20 Billion to Help Its Employees and Support Local Economic Growth

In January 2018, JPMorgan Chase announced a $20 billion, five-year comprehensive investment to help its employees and support job and local economic growth in the United States. The initiative will include the following:

• Wages will increase 10% on average – ranging from between $15 and $18 per hour – for 22,000 employees.
• Opening 400 branches in new markets, leading to increased small business lending and philanthropic investments, plus more support for local low-and moderate-income communities.
• Increasing community-based philanthropic investments by 40% to $1.75 billion over five years.
• Increasing small business lending by $4 billion.
• Accelerating affordable housing lending by (a) increasing mortgage lending in low-and moderate-income communities and (b) accelerating commercial lending to build affordable housing.

6. CVS Health Launches $50 Million Campaign to Curb the Rise of Teen Vaping

Earlier this summer, CVS Health announced a new $50 million campaign to help stop teen vaping and create the first tobacco-free generation. Part of the money will go toward the following:

• Creating digital curriculum resources and engaging content to help middle and high school students learn about the risks of e-cigarette use.
• Support for #ThisIsQuitting, a text message program developed by Truth Initiative that offers young people a free, confidential, and anonymous way to access behavioral and peer-to-peer social support to quit vaping.
• Provide family clinicians with the resources they need to appropriately counsel young patients on the dangers of Electronic Nicotine Delivery Systems (ENDS).

Stopping teen vaping isn’t the only cause CVS Health supports. The company – in association with Aetna, which CVS acquired in 2018 – also recently launched the Building Healthier Communities initiative, a five-year, $100-million commitment to support critical programs and partnerships with local and national nonprofit organizations.

The campaign includes no-cost health assessments to underserved and underinsured communities, grants to more than 100 free clinics and community health centers, and funding to organizations working on issues such as cancer, diabetes, and opioid abuse.

Corporate Investment Definition

Corporate investment or finance is the division of finance that deals with how corporations deal with funding sources, capital structuring, and investment decisions. Corporate investment is primarily concerned with maximizing shareholder value through long and short-term financial planning and the implementation of various strategies. Corporate finance activities range from capital investment decisions to investment banking.

Types of Corporate Finance Tasks

Capital Investments

Corporate finance tasks include making capital investments and deploying a company’s long-term capital. The capital investment decision process is primarily concerned with capital budgeting.

Through capital budgeting, a company identifies capital expenditures, estimates future cash flows from proposed capital projects, compares planned investments with potential proceeds, and decides which projects to include in its capital budget.

Making capital investments is perhaps the most important corporate finance task that can have serious business implications. Poor capital budgeting (e.g., excessive investing or under-funded investments) can compromise a company’s financial position, either because of increased financing costs or inadequate operating capacity.

Capital Financing

Corporate finance is also responsible for sourcing capital in the form of debt or equity. A company may borrow from commercial banks and other financial intermediaries or may issue debt securities in the capital markets through investment banks (IB). A company may also choose to sell stocks to equity investors, especially when need large amounts of capital for business expansions.

Capital financing is a balancing act in terms of deciding on the relative amounts or weights between debt and equity. Having too much debt may increase default risk, and relying heavily on equity can dilute earnings and value for early investors. In the end, capital financing must provide the capital needed to implement capital investments.

Short-Term Liquidity

Corporate finance is also tasked with short-term financial management, where the goal is to ensure that there is enough liquidity to carry out continuing operations. Short-term financial management concerns current assets and current liabilities or working capital and operating cash flows.

A company must be able to meet all its current liability obligations when due. This involves having enough current liquid assets to avoid disrupting a company’s operations. Short-term financial management may also involve getting additional credit lines or issuing commercial papers as liquidity back-ups.

What is The Effect of Investment to The Economy?

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)

An increase in investment should be a boost to economic growth.

Investment means expenditure on capital spending, e.g. buying new machines, building bigger factories, buying robots to enable automation. (in economics investment does not mean saving money in a bank)

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.

However, if the economy is close to full capacity, then rising AD will only cause inflation and not an increase in real GDP

However, there are other factors that affect AD apart from investment. For example, if there was a fall in consumer spending or a fall in exports, then a rise in investment may not actually increase AD. Investment is not the biggest component of AD (approx 16%); the biggest component of AD is consumer spending (approx 66%).

Investment and the multiplier effect

If the economy has spare capacity, a rise in investment can also cause a multiplier effect. The initial rise in investment increases economic growth, but if firms gain more sales and profit, they are willing to reinvest this in further investment.

Also, households who gain employment from the investment, have more income to spend. Thus an investment of £2 billion could cause a final increase in real GDP of £3 billion.

What Are The 4 Types of Investment?

The world of investing can often be confusing, so we’re here to explain to you the four main types of investments, or asset classes, that you can choose from.

1. Cash

We are in the midst of a ‘war on cash’ according to some, with companies such as Square (NYSE: SQ) and  PayPal (NASDAQ: PYPL) set out to end the need for cash as a utility altogether. However, cash will likely always have a place in the economy, whether in paper or digital form. 

Cash investments include everyday bank accounts, high interest savings accounts and term deposits, and typically carry the lowest potential returns of the four different investment types. 

However, it is always healthy to have a good amount of cash on hand in case of a rainy day. It is safe, and though it will lose value over time due to inflation, it can play an important role in providing you with liquidity should a downturn occur. 

The average bank interest rate for checking accounts in the United States is 0.06%. 

2. Fixed Interest

The one that investors might know a lot about is ‘bond’ investments. This is effectively a loan taken out by the government from willing investors with the promise of repayment with a fixed interest rate. 

In the U.S., Federal Treasury bonds are the most well-known. Treasury bonds are fixed-rate U.S. government debt securities with a maturity range between 10 and 30 years.

Bonds are considered as a defensive investment, because they generally offer lower potential returns and lower levels of risk than shares or property. Government bonds are not the only form of fixed interest investments, but they are probably the safest, and virtually guarantee a fixed return rate over the established period. 

The long-term average interest rate return on government bonds, as of April 2020, is 6.13%.   

3. Property

Property is considered a very risky growth investment. This is because the price of the housing market can shoot up or down substantially over time, which is what happened in the lead up to the 2008 Economic Crash. 

It is possible to invest directly by buying a property but also indirectly, through a real estate investment trust (REIT).

REIT’s generally specialize in one particular sector of real estates, such as retail, residential, healthcare, or office blocks. Some examples include American Tower (NYSE: AMT), Vanguard Real Estate ETF (NYSEARCA: VNQ), and Prologis (NYSE: PLD).

According to the S&P 500 (NYSEARCA: VOO), the average return on rental properties as of the end of 2019 was 10.6%. 

4. Shares

And finally, the investing type we all know and love shares. Whether you’re a fan of the safe and solid Microsoft (NASDAQ: MSFT) or the risky, potentially high growth Beyond Meat (NASDAQ: BYND), investing in shares allows you to take a slice of either. 

As I’m sure you are already aware of how investments in company shares work, I’ll keep this brief: 

Shares are considered a growth investment as they can help grow the value of your original investment over the medium to long term. If you own shares, you could also receive income from dividends, which is when a company shares a portion of its profits with investors.

Why Investment is Important For a Country’s Economic Development

Investment are the building blocks on which an economy is built. The mere existence of a financial sector is nor adequate for any economy unless there is a robust real sector of the economy having investments that create assets and generate returns.

investment is the most important economic factor for a nation. Investment is very important in a country’s economic development: It’s the main source of employment creation and the main factor of economic growth.

Investment increase involves Gross Domestic Product (GDP) and National Revenue increase. Investment induces economic prosperity and welfare improvement in general.

Investment helps in economic development of a country in various ways such as-

• it helps in the growth and development of industries and the service sector which further brings growth and prosperity to the country.
• helps in creating employment opportunities which leads to an increase in national income and in turn economic development.
• infrastructural development also needs huge investment and any country can’t grow without better infrastructure.
• helps in increasing the PCI of individuals and the living standards of people which is an indicator of economic development.

What Are Corporate Investments?

Corporate investment involves managing assets, liabilities, revenues, and debts for a business.

There are three main types of corporate investment categories in accounting.

1. Ownership Investments: Referring largely to things like stocks, real estate, precious objects, and business investments, ownership investments refer to investments in which the buyer actually owns the asset. This is the most common type of investment. Accounting professionals can help to ensure that these investments are still producing income or appreciating.
2. Lending Investments: As a lending investor, you serve as a banker. You’re essentially buying debt in the hope and expectation that that debt will be repaid. Bonds, savings accounts, and Treasury inflation-protected securities (or TIPS) are all lending investments.
3. Cash Equivalents: These investments are “as good as cash.” It’s very simple to liquidate them, or convert them back to cash, if necessary. Money-market funds are cash equivalents.

A good portfolio should have a few of all three of these types of investments. While building a portfolio, an investor might also hear about mutual funds, which pool money from multiple investors together to make larger investments. An exchange-traded fund, or ETF, is similar to that concept but is traded like stock.

Does Investing Help The Economy?

The investment adds to the stock of capital, and the quantity of capital available to an economy is a crucial determinant of its productivity. Investment thus contributes to economic growth. An increase in an economy’s stock of capital shifts its production possibilities curve outward.

That also shifts its long-run aggregate supply curve to the right. At the same time, of course, an increase in investment affects aggregate demand

What Are The Social Responsibilities of International Firms?

Companies better understand that along with gaining economic profit they must take responsibility and incorporate actions into their business models to meet customer expectations of environmental stewardship. Many corporate leaders have spearheaded efforts to solve local or even global problems and improve social well-being.

An international business by definition is a company that transacts on the global stage. Corporate social responsibility is self-regulation by a global company with the objective of embracing responsibility for the company’s actions and creating a positive impact through its activities on its customers, employees, communities and the environment.

A transnational company may build into its mission, strategy and everyday operations elements that serve to promote specific goals, for example, using recycled paper or organic hand soap in the offices to help save the environment.

What Are the Main Influences on a Country’s Economic Development?

Economists generally agree that economic development and growth are influenced by four factors: human resources, physical capital, natural resources and technology. Highly developed countries have governments that focus on these areas.

Less-developed countries, even those with high amounts of natural resources, will lag behind when they fail to promote research in technology and improve the skills and education of their workers.

The Impact of Human Resources

The skills, education and training of the labor force have a direct effect on the growth of an economy. A skilled, well-trained workforce is more productive and will produce a high-quality output that adds efficiency to an economy.

A shortage of skilled labor can be a deterrent to economic growth. An under-utilized, illiterate and unskilled workforce will become a drag on an economy and may possibly lead to higher unemployment.

Investment in Physical Capital

Improvements and increased investment in physical capital – such as roadways, machinery and factories – will reduce the cost and increase the efficiency of economic output. Factories and equipment that are modern and well-maintained are more productive than physical labor. Higher productivity leads to increased output.

Labor becomes more productive as the ratio of capital expenditures per worker increases. An improvement in labor productivity increases the growth rate of the economy.

Quantity and Availability of Natural Resources

The quantity and availability of natural resources affect the rate of economic growth. The discovery of more natural resources, such as oil or mineral deposits, will give a boost to the economy by increasing a country’s production capacity.

The effectiveness of a county at utilizing and exploiting its natural resources is a function of the skills of the labor force, type of technology and the availability of capital. Skilled and educated workers are able to use these natural resource to spur the growth of the economy.

Improvements in Technology

Improvements in technology have a high impact on economic growth. As the scientific community makes more discoveries, managers find ways to apply these innovations as more sophisticated production techniques.

The application of better technology means the same amount of labor will be more productive, and economic growth will advance at a lower cost.

Countries that recognize the importance of the four factors that affect economic growth will have higher growth rates and improved standards of living for their people.

Technological innovation and more education for workers will improve economic output which lead to a better living environment for everyone. Increases in labor productivity are much easier to achieve when investments are made on better equipment that requires less physical work from the labor force.

What Role Does Savings And Investments Playing in The Economy?

Savings and investment play an important role in our world economy. Consumption is expenditures by household on final goods and services. Saving is the part of the disposable income that is not consumed at present investment means the purchase of capital goods (such as land, Equipment, building e.t.c).

If society invests more in the capital, it must consume less and save more of its current income. It requires that society sacrifices consumption of goods and services in the present to enjoy higher consumption in the future. Nations that save and invest a large fraction of their incomes tend to have rapid growth of output, income, and wages.

Savings can be subdivided into private saving. Public saving, national saving e.t.c. Investment includes tangible capital such as houses and intangible investments such as education. Again, investment can be Net investment or Gross investment.

Net investment is the value of the total investment after an allowance has been made for depreciation. Gross investment is an investment without allowance for depreciation. In finance terms, “Investment has an altogether different meaning and denotes the purchase of a security, such as a stock or a bond”.

Saving can be influenced by the level of consumption, Population growth, political stability or instability, the rate of income e.t.c. It is known to us, saving influences over-investment in an economy. So saving is a very crucial topic to investment. If the rate of saving is increased, it means the increased rate in investment or capital accumulation or efficiency in productivity.

How Can an Investment Increase in The Economy?

When looking into a national economy and how it can be affected, there’s a crossover between investment, productivity and growth in terms of what can make an economy successful.

In a basic equation, investment leads to productivity improvements, which in turn leads to increased growth. This then leads to improved profits and additional investment, and in an ideal economy, the cycle continues. Thus, investment is somewhat the key critical point.

On an individual scale, investment can mean either spending money on one’s personal business or investing it into stocks, bonds, and other financial resources meant to provide future value through interest. On the national economic scale, investments back into the capital are the ones that tie into economic measures and economic growth.

The importance of savings and investment for economic growth cannot be overstated. The relationship between investment, economic growth and productivity and their subsequent effects on the economy seem obvious, but they are all dependent on the market conditions and the expected economic performance.

Growth begets growth: Investment leads to increased productivity and thus to economic growth, which returns money back to the beginning of the cycle. However, upsets to this balance will disrupt the cycle and slow down the growth.

Slowed growth does not necessarily mean moving into the negative. For example, slowing economic growth will also slow the rate of inflation, allowing money to carry more value than expected. It also slows down the use of natural resources and utilities and allows space for alternative technologies that may not have been feasible before due to the market growth rate and demand but look attractive now.

What is The Role of Investment Banks?

Investment banks serve several purposes in the financial and investment world, including underwriting new stock issues, handling mergers and acquisitions, and acting as a financial advisor.

Other roles of investment banks include asset management for large investment funds and personal wealth management for high-net-worth individuals. Some of the major investment banks include Goldman Sachs, JPMorgan Chase, and Credit Suisse.

As their core function, investment banks help corporations obtain debt financing by finding investors for corporate bonds. The investment bank’s role begins with pre-underwriting counseling and continues after securities distribution in the form of advice.

The investment bank will also examine the company’s financial statements for accuracy and publish a prospectus that explains the offering to investors before the securities are made available for purchase.

Investment banks’ clients include corporations, pension funds, other financial institutions, governments, and hedge funds. The best investment banks are usually the largest. The more connections the bank has within the market, the more likely it is to profit. The largest investment banks have clients around the globe.

Underwriting New Stock Issues

One of the primary roles of an investment bank is to serve as a sort of intermediary between corporations and investors through initial public offerings (IPOs). Investment banks provide underwriting services for new stock issues when a company decides to go public and seeks equity funding.

Underwriting basically involves the investment bank purchasing an agreed-upon number of shares of the new stock, which it then resells through a stock exchange.

Part of the investment bank’s job is to evaluate a company and determine a reasonable price at which to offer stock shares. IPOs, especially for larger companies, commonly involve more than one investment bank.

This way, the risk of underwriting is spread across several banks, reducing the exposure of any single bank and requiring a relatively lower financial commitment to the IPO. Investment banks also act as underwriters for corporate bond issues.

Financial Advisory Roles

Investment bankers act in several different advisory capacities for their clients. In addition to handling IPOs, investment banks offer corporations advice on taking the company public or raising capital through alternative means. Investment banks regularly advise their clients on all aspects of financing.

Mergers and Acquisitions

Handling mergers and acquisitions is a major function of investment bankers. As with IPOs, one of the main areas of expertise for an investment bank is its ability to evaluate the worth of a possible acquisition and arrive at a fair price. An investment bank can also help structure and facilitating the acquisition to make the deal go as smoothly as possible.

What is The Relationship Between Economic Growth And Economic Development?

Economic growth means an increase in real national income / national output.

Economic development means an improvement in the quality of life and living standards, e.g. measures of literacy, life-expectancy and health care.

Ceteris paribus, we would expect economic growth to enable more economic development. Higher real GDP enables more to be spent on health care and education.

However, the link is not guaranteed. The proceeds of economic growth could be wasted or retained by a small wealthy elite.

Economic growth

Economic growth measures an increase in Real GDP (real output). GDP is a measure of the national income / national output and national expenditure. It basically measures the total volume of goods and services produced in an economy.

Economic development

Development looks at a wider range of statistics than just GDP per capita. Development is concerned with how people are actually affected. It looks at their actual living standards and the freedom they have to enjoy a good standard of living.

Measures of economic development will look at:

• Real income per head – GDP per capita
• Levels of literacy and education standards
• Levels of healthcare e.g. number of doctors per 1000 population
• Quality and availability of housing
• Levels of environmental standards
• Life expectancy.

How Does Savings Affect Economic Development?

The savings ratio a big determinant of economic activity. Consumer spending accounts for 63% of GDP – dwarfing other areas, such as government spending, investment and exports. A rise in the savings ratio can have a very significant impact on economic activity.

In principle, there’s nothing wrong with a ‘savings investment culture’. Higher savings can help finance higher levels of investment and boost productivity over the longer term.

• In economics, we say the level of savings equals the level of investment. Investment needs to be financed from saving.
• If people save more, it enables the banks to lend more to firms for investment.
• An economy where savings are very low means that the economy is choosing short-term consumption over long-term investment. To starve the economy of investment can lead to future bottlenecks and shortages.
• The Harrod-Domar model of economic growth suggests the level of savings is a key factor in determining economic growth rates.

Whilst in the long-term, savings are an important factor in determining investment. In the short-term, a rapid rise in savings could cause a fall in consumer spending which can lead to a recession.

Read Also: How do Small Businesses Get Funding

Since consumer spending accounts for 63% of GDP, this rapid increase in savings and a fall in spending was a significant cause of the 2008/09 recession. The continued reluctance of consumers to spend is a significant factor in the continued economic stagnation.

In this circumstance, a rapid rise in saving does not cause an equivalent rise in investment. Although banks see a rise in their deposits, they are reluctant to lend to firms – because the economic outlook is pessimistic. Also, in a recession, banks may not want to invest – even if banks are willing to lend at low rates. A recession usually sees a sharp fall in investment.

Finally

Corporate giving of dollars and time will continue to grow in the coming decade. Even smaller businesses are becoming aligned with the practice.

If your organization doesn’t have a workplace philanthropy and volunteer programs, maybe it is time to evaluate how to put those in place. The benefits extend both internally and externally.

The Effects of Giving and Volunteerism

• Americans gave $389.05 billion in 2016. This reflects a 4.2% increase from 2015.
• Corporate giving in 2016 increased to $18.55 billion – a 3.5% increase from 2015.
• Foundation giving in 2016 increased to $58.28 billion – a 3.5% increase from 2015.

Volunteering (Individuals)

• Approximately 63 million Americans — 25 percent of the adult population — volunteer their time, talents, and energy to making a difference.
• The 2016 national value of volunteer time is $24.14 per hour. In other words, Americans contribute $193 billion of their time to our communities.
• The top four national volunteer activities are food collection or distribution (24.2%), fundraising or selling items to raise money (23.9%), general labor or transportation (18.8%), and tutoring or teaching (17.9%).
• The top four volunteer areas are for religious (34.1%), educational (26%), social service (14.9%), and health (7.3%) organizations.