Governments, organisations and individuals often make plans to achieve some particular goals in the future. Many do this by setting aside funds or spending on certain goods that will bring about future benefits. This process can be called investment. Investment can be defined as expenditure for the acquisition of new plant, machinery and equipment as well as for building roads, houses, hospitals and bridges. Collectively these types of spending are known as capital or physical investment.
Investments that involve putting money aside as fixed deposits with banks or buying shares in a company constitute a financial investment. This form of investment differs from physical investment which increases the country’s productive capacity or the ability to produce more goods and services for the future. Such investment leads to the accumulation of a nation’s capital stock and helps generate higher output in the economy. For instance, a farmer who purchases a tractor is likely to become more efficient in crop production thereby boosting overall output. Similarly, Government investment via construction of new roads between farming communities and towns would improve connectivity and accessibility for farmers to markets, implying greater opportunity for growth in the economy.