Formation of the investment growth financial mechanism

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Lviv State Academy Оf Finance

Formation of the investment growth financial mechanism

Maksymiv D.Y.

Scientific problem formulation and its relevance. Investments, expressed through the investment process, are main reasons and accelerators of any economic growth and social development. It is investments and their growth in the real economy sphere (production especially) that serve the trigger of national economics progress within the context of the world competitiveness rate.

Constant loss of interest to domestic economy among investors involves various socioeconomic issues, such as unemployment increase, erosion of purchasing power, reduction of consumption level, decrease in production, and GDP rate fall.

The constant deficit of investment resources and decrease in investments, especially during crises, are important economic problems, raising issues of development of the efficient mechanism of investment accumulation.

Recent studies. Although there are a lot of scientific papers about «investments» and «investment process», there is still lack of fundamental and applied studies concerning the issue of investment accumulation - «investment growth», and the development of the investment growth mechanism. However, some scientists partially address this issue: I.R. Buzko [2], T.H. Zatonatska [3], S.V. Zakharin [4], V.I. Zaharchenko [5], V.P. Prikhodko [6], L.D. Seydametova [7] and others. Therefore, the problem of elaborating an effective mechanism of investment growth requires further research.

The purpose of this study is theoretical justification and practical advice on development of the investment growth financial mechanism. This purpose requires settlement of objectives: to formulate theoretical framework and practical advice on formation, realization and functioning of the investment growth financial mechanism.

Main results. The history of global economic development and economic thought shows that investments, affecting different spheres of social life, are essential for formation and strengthening of production potential and social sphere. This fact is implicit and is confirmed by representatives of all leading economic schools. Review of different scientific theories, discussing essence and importance of investment for the global economic development, is essential for creating perfect theoretical framework for better understanding of investment and the investment process, as important objects for the management of an economy [7, p. 57].

First deep studies of investment and investment process appeared in papers of J.B. Williams [10], further H.M. Markowitz, W.F. Sharpe and other scientists [4; 7; 8; 9].

In macroeconomics investments are considered to be the most active elements of the aggregate demands, which affect the economic equilibrium [1, p. 59]. They are crucial for accelerated structural changes of the economy, rapid scientific and technical progress and completion of economic transformation [6, p. 43]. The leading role of investments in domestic production is caused by the fact, that being transformed into real capital elements they form material basis for production and create preconditions for sustainable production growth [3, p. 38]. Importance of investment for a great number of social and economic processes makes them a relevant instrument for the management of an economy, because any economic or production growth requires investment growth.

Investment growth is essential for development of enterprises, separate industries and the overall economy, acceleration of innovative activities, reaching sustainable economic growth [5, p. 8]. In order to implement positive changes, reorientation of the state policy from anti-crisis responses to strategic targeted regulation of investing activities and investment accumulation is necessary [3, p. 208]. The growth of investments from all possible sources and their efficient use is a basic pre-condition for future country's economic growth [2, p. 6].

Therefore, acceleration of investment growth is the most important and desirable result of any reforms, since investment growth is the key element of economic and structural changes and creates possibilities for further development and sustainable economic growth, encouragement of efficient technologies, efficient use of existing resources, preparation of qualified personnel, production of competitive and high-quality products.

It was found on the basis of deep empirical analysis of scientific literature, that studies of investment accumulation are quite superficial. And there is still lack of studies for deeper understanding the process of «investment growth», as a separate regular economic category.

* developed by the author

Figure 1. New classification of investments and the investment process

Figure 2. Structural model of the investment growth financial mechanism

New fundamental and applied studies of the process of «investment growth» will enable better understanding the essence of other processes, being component parts of the investment growth, and further formulate the efficient financial mechanism of investment accumulation.

A new classification of investment types has been developed (Figure 1), which shows, that consumption is also to some extent investment and is a part of the investment process, because thanks to consumption supply-side obtains new capital, and the next cycle of sustainable investing becomes possible. Such consideration of the investment process will promote deeper understanding the essence and the importance of investments in the process of development, formation and functioning of the investment growth financial mechanism.

Based on the previous studies and the analysis of different economic theories, the hypothesis of efficiency of the investment growth financial mechanism has been formulated and justified (Figure 2), where the investment growth has been shown as the mechanism of production growth and the trigger of economic development.

developed by the author

Figure 3. Simplified scheme of the investment field ,functioning

Investment growth should be understood as the result of functioning of the system of optimal relations between all production, consumption and financial institutions, realized with the purpose of economic or social effects and technological development. Investment growth is an important instrument for institutional transformation and structural changes in the economy.

The economic essence of the investment growth lays in production expansion, modernization, increase in household's capacity to pay and increase in demand for goods and services.

After development and implementation of the investment growth financial mechanism the so-called «investment field» will be created (Figure 3), that will trigger investment growth and promote closer relations between structural elements (subjects of the investment field) of the mechanism, that consequently will significantly reduce transaction costs and secure better information exchange.

The investment field will promote accelerated exchange of information, finance, commodities, technologies and other resources and services inside this field, that will unite and support close system relations, both between all subjects of the field and between separate subjects, significantly accelerating the speed of perception, analysis, response, regulation and correction of problems, arising in the system or inside the separate subject of the investment system. This will significantly increase the functionality of the hole system and promote further investment growth.

The investment growth should trigger the production process, increase low household's capacity to pay and promote further production expansion, due to an increase in the level of household consumption.

Conclusions and prospects for further studies. Efficient realization of the investment growth financial mechanism is essential for solving numerous economic and social problems. It will lead to an active engagement of many new domestic and foreign investors into the investment process, outlining huge prospects for further scientific studies.

In order to improve the government investment policy and the realization of the investment growth financial mechanism and to put these findings into practice, it is recommended:

For the government: to introduce legislation on investment in order to enable formation and functioning of the investment growth financial mechanism; to develop a long-term program of investment accumulation on the basis of the suggested investment growth mechanism. For ministries and departments: to promote the development and implementation of this mechanism at all levels and stages of formation and functioning. For local authorities: to explain the basics of the investment growth mechanism functioning to financial institutions of all levels, households and all other actors of the investment field; to create Agencies for support of the investment field subjects (ASIFS): which could benefit to solving problems and issues, having arise in the process of functioning of the investment growth financial mechanism.

References

financial solvency investment economic

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