Why is investment important? And where?

A Dictionary of Finance

Investment has been neglected in Europe since the financial crisis a decade ago, according to the European Investment Bank’s annual Investment Survey. But what effect does that really have? To answer that, first we back up and ask: What is investment? Why does it need to keep increasing?

Investment is the acquisition of goods that are used in the production of other goods and services. Those goods and services are used to produce something in the future.

Still, the definition of investment and its role needs to change, says Debora Revoltella, the EIB’s chief economist, on the podcast. That’s a result of the drop in investment over the last decade. “One message we have for Europe,’’ Debora says, “is that we should have a new narrative stating the importance of infrastructure, reprioritizing it in political terms. There are long-term consequences to neglecting infrastructure.”

On A Dictionary of Finance Debora and two of her colleagues tell us all about investment. They do this by:

• Explaining some key terms, like market gap and market failure
• Detailing the results of their annual and exhaustive survey of Europe’s investment climate.

Debora came to the studio with Atanas Kolev and Philipp-Bastian Brutscher, who led the investment report team. They told us that Europe’s economy is on the mend, with investment growing at a rate of 3.2%, beating the average growth rate of about 2.75% before the European economic crisis in 2009.

But infrastructure investment has fallen to 1.8% of EU gross domestic product, down from 2.2% in 2009. That undermines long-term economic potential, they tell us.

You’ll also learn about some of the barriers faced by new, innovative companies—and how big institutions need to help them, so that Europe can keep up with the US and other competitors.

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