Economic growth is determined by a nation’s gross domestic product (GDP) increase. GDP can be described as the cumulative value of various services and goods produced annually within a country (Kuznets, 2019). At the same time, several forces stimulate economic growth. These forces can work collectively to ensure the increase of the country’s GDP. Despite the availability of several forces, no single force can be used to consistently accelerate the ideal or perfect growth necessary for an economy. For this reason, factors stimulating economic growth can be subjected to various conditions, like recessions caused by geo-financial and geopolitical events. However, investment demand has proved to be vital in stimulating economic growth.
Investment demand is one of the significant factors that can stimulate economic growth. Investment demand is caused by business entities for services and physical capital utilized to expand and maintain business operations (Pandusetya et al., 2021). Factory spaces, computers, office spaces, machinery, and other physical capital and support services make up business demands. Through this investment, organizations can build and strengthen their physical capital stock to increase their production capacity for goods and services. Strong investment demand in the country means more businesses are building on their physical stock, and the new entrants’ rate is high. Investments by various businesses can influence the country’s economy in terms of long-term and short-term growth. Business investment tends to increase GDP levels due to increased physical capital production.
Similarly, the business sector should be more stimulated as this will improve physical capital production, thus stimulating aggregate supply. This is defined as the total output produced and sold by businesses. It defines the real GDP of the country. With favorable aggregate supply, manufacturers will comfortably meet the local demands and produce a surplus for exportation, which is necessary for economic growth.
In conclusion, no particular force can consistently accelerate economic growth. However, investment demand increases the supply of various capital goods necessary to spur economic growth. At the same time, stimulating the business sector enhances the aggregate supply necessary to meet local demand.
References
Kuznets, S. (2019). Economic growth and income inequality. In The gap between rich and poor (pp. 25-37). Routledge.
Pandusetya, D. C., Maskie, G., & Muljaningsih, S. (2021). Analysis of the Influence of Government Expenditure, Investment, and Labor Force on Economic Growth in Malang Regency 2000–2018. International Journal of Business, Economics and Law, 24(1), 71-78. https://www.ijbel.com/wp-content/uploads/2021/02/IJBEL24_527.pdf
