The capacity to generate investment. An analysis of long-term determinants of investment

What do we know about long-term determinants of investment? It seems to me that both neoclassical and Keynesian theory of economic growth provide a poor answer to this question so important for any theory of growth and accumulation. If we consider the traditional theory in which the interest rate represents the key variable for studying investment decisions, both theoretical and empirical considerations suggest, as is well known, to change direction. In the Keynesian theories of economic growth, the investment decisions are reduced to the mechanism of adjusting the productive capacity to the demand according to the accelerator principle, whose use presupposes a constant full (or normal) utilisation of capacity, no technical change and a mechanical behaviour of firms. I propose to adopt a different observation point and to regard investment decisions as the result of a series of inducing mechanisms by which these decisions are activated. After analysing the significance of satisfying the need to adjust productive capacity to expected demand and the need for profitability, I refer to the general characteristics of the actual working of competition and define the notion of capacity to generate investment understood as capacity to create and exploit new investment opportunities through inducing mechanisms linked with the innovative activity of firms. In the Hirschman, Perroux and Dahm\ue8n tradition, these inducing mechanisms are defined in terms of dynamic linkages and are connected with four strategic factors in investment decisions: focusing mechanism and learned processes, complementarities and interdependences, expectations and uncertainty, growth in demand.Abandoning the neoclassical paradigm, this paper disputes the antithesis between demand factors and supply factors in the investment determinants. Expected demand induces investment decisions as far as it is regarded as permanent and this forces an enquiring into the way in which expectations concerning the future demand are formulated. On the supply side, the technological characteristics of the investment, the economic reasons behind it (product innovation, opening up of new markets, goals of cost reduction), the decisions concerning localisation and the economic and social environment within which firms reach their investment decisions are considered crucial elements in the explanation of the long-term determinants of investment in a way wholly independent of the full capacity saving of the economy. (J.E.L. E22, O30.)