Investment

Investment has been defined by the Organisation for Economic Co-operation and Development (OECD) as all assets owned or controlled by an investor, either directly or indirectly. Investment in a national economy, business, or household tends to be portrayed as a progressive and prudent activity for the future, to be contrasted with consumption, which is often seen as the use or squandering of scarce resources for imprudent and short-term gratification.

Investment can be subdivided between public investment by governments and state-owned corporations and private investment by companies, individuals, and households; between domestic investment, accounting for more than ninety percent of total investment in most economies, and foreign investment; between physical or tangible investment in the fixed infrastructure, such as roads, railways, and telecommunications, and human or intangible investment in education, skills, and knowledge; and between direct investment in physical assets and portfolio investment in a range of assets, including stocks, shares, and other financial products.

Investment tends to be measured in quantitative terms. The total amount of public and private investment, as a percentage of national income, is often used as a proxy measurement of international competitiveness and comparative national economic performance. In 2003, whole economy investment among the Group of 7 industrialized economies stood at an average of 17.8 percent of gross domestic product [Page 497](at current prices). Investment is also measured by its rate of return, profitability, or income yield.

The World Bank has noted the importance of government policies for creating a good investment climate. The bank has also identified a huge range of factors, shaped by governments and public policies, that may affect the pattern of investment in a given territory, including macroeconomic stability, regulation and taxation, the security of property rights, the functioning of capital and labor markets, and broader governance features, including the predictability and credibility of policy and the level of corruption.

The framework of international agreements governing investment is extremely extensive. The UN Conference on Trade and Development has calculated that by the end of 2003, more than 2,200 bilateral investment treaties and nearly 2,300 double taxation agreements had been signed by 176 countries in an attempt to promote investment. In addition to such national and bilateral arrangements, investment is also governed by regional and supranational frameworks, such as Chapter 11 of the North American Free Trade Agreement and the rules governing the European Union (EU)'s Single Market, and international agreements, such as the World Trade Organization (WTO)'s General Agreement on Trade in Services (GATS). Under the GATS, WTO members are required to treat services and their providers on an equally favorable basis, in accordance with the principle of most-favored nation (MFN). However, attempts to extend this principle into the global governance of investment have previously proven to be highly controversial. In May 1995, the OECD commenced negotiations to create the Multilateral Agreement on Investment (MAI). The MAI proposed granting national treatment and MFN status to all investors, requiring investors to be treated exactly the same irrespective of their country of origin. The MAI also included provisions for direct investor to state dispute resolution, which would have given foreign investors and transnational corporations the opportunity to directly sue governments for compensation, where they could prove the principle of equal treatment of investors had been violated. Because the MAI appeared to raise the rights of investors to a par with, or beyond, those of citizens and their democratically elected governments, the MAI was vigorously opposed. The OECD abandoned negotiations on the MAI in April 1998.

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