Abstract
Investment activity is a cornerstone of economic, social, and scientific-technical development,
driving financial stability, profitability, and competitiveness. This article explores the multifaceted
nature of investments, their classifications, and their critical role in both macro and
microeconomic contexts. It examines the diverse forms of investments, including real, financial,
and intangible assets, and highlights the risks and uncertainties inherent in investment
decisions. The article also discusses the factors influencing investment processes, such as
private investor participation, state policies, and global economic conditions. Furthermore, it
underscores the importance of creating a favorable investment environment to attract both
domestic and foreign investments. By analyzing the definitions and perspectives of prominent
economists, this article provides a comprehensive understanding of investment strategies and
their impact on economic growth and development.
Keywords: Investment strategy, economic development, investment risks, financial
instruments, real investments, financial investments, investment attractiveness, foreign
direct investment (FDI), investment environment, profitability, entrepreneurship.

The Role of Investment in Economic Development
Investment activity is a fundamental driver of economic, social, and scientific-technical progress.
It ensures the financial stability of economic entities, enhances profitability, and improves the
competitiveness of products and services. Investments involve the allocation of resources—
financial, material, and human—to generate future growth and returns. These resources can be
directed toward tangible assets, such as real estate and equipment, or intangible sectors, such
as advertising, licensing, and education.
The investment process is inherently tied to risk and uncertainty. Entrepreneurs must make
decisions about resource allocation in the face of unlimited needs and limited resources.
Investment attractiveness, often quantified through risk assessment, reflects the probability of
losing invested funds due to social, political, and economic factors. A comprehensive evaluation
of these risks is essential to determine the feasibility and efficiency of investment projects.
Definitions and Perspectives on Investments

Economic literature offers various definitions of investments. Nobel Prize winner W. Sharpe
describes investing as sacrificing money today to gain more in the future, emphasizing two key
factors: time and risk. Sharpe categorizes investments into:
1. Real investments—tangible assets like buildings and equipment.
2. Financial investments—securities, stocks, and similar instruments.
L. Gitman defines investment as "the process of placing money in specially selected financial
instruments to increase their value or generate income," highlighting personal or private interest.
Meanwhile, Gortney and Stroup emphasize the connection between investments and savings,
viewing investment as the acquisition and development of capital resources.
Functions of Investments
At the macroeconomic level, investments:
1. Facilitate large-scale reproduction policies,
2. Accelerate scientific and technological progress,
3. Ensure proportional development across sectors,
4. Establish industrial raw material bases,
5. Promote social development in education and healthcare,
6. Address unemployment.
At the microeconomic level, investments:
1. Expand production,
2. Prevent depreciation of fixed assets,
3. Improve product quality and competitiveness,
4. Enable acquisitions of securities and assets,
5. Maximize profits.
Classifications of Investments
Investments can be classified based on various criteria:
1. By Object of Activity: Real sector, financial sector, and intangible investments.
2. By Organizational Forms: Individual, project-based, and portfolio investments.
3. By Duration: Long-term, short-term, and medium-term investments.
4. By Ownership: Private, state, foreign, and joint investments.
5. By Nature of Participation: Direct (e.g., FDI) and indirect (portfolio) investments.

6. By Direction of Activity: Initial, efficiency-enhancing, and market-positioning
investments.
7. By Region: Domestic and foreign investments.
8. By Risk Level: Low-risk and high-risk investments.
9. By Source of Funds: Own funds and borrowed funds.
Factors Influencing Investment Processes
Investment activity is shaped by a combination of private and state factors:
Private Investor Participation:
Availability of funds,
Savings rates,
Tax burdens,
Production efficiency.
State Participation:
Budget allocations for capital investments,
Refinancing rates,
Social policies and living standards,
Foreign economic policies,
Economic and political stability.
Foreign Investments
When domestic investments are insufficient, governments often seek foreign investments, which
can be:
Direct investments: Tangible assets in underdeveloped or transitioning economies.
Indirect investments: Financial instruments in developed economies.
Investment Attractiveness
Key indicators of investment attractiveness include:
Property rights development,
Ease of starting a business,
Investor protection,
Tax system efficiency,
Access to loans,

Political stability.
Profitability and Investment Decisions
The ultimate goal of investment is profit generation. Entrepreneurs consider the expected net
profit rate and real interest rate when making investment decisions. Higher profitability increases
investment incentives, while factors like taxes, equipment costs, and technological changes
influence demand.
Conclusion
Investments are a vital driver of economic growth and development. By understanding the
diverse forms, functions, and risks associated with investments, policymakers and
entrepreneurs can create strategies to enhance investment attractiveness and foster
sustainable economic progress. A favorable investment environment, supported by sound
policies and institutional frameworks, is essential for attracting both domestic and foreign
investments.

References
1. Sharpe, W. (1964). Capital Asset Prices: A Theory of Market Equilibrium under
Conditions of Risk. Journal of Finance.
2. Gitman, L. (2003). Principles of Investment. Pearson Education.
3. Gortney, M., & Stroup, R. (2010). Economics: Private and Public Choice. Cengage
Learning.
4. World Bank. (2020). Doing Business Report.
5. OECD. (2019). Foreign Direct Investment Statistics.

Author: Avetis Aghabekyan
Independent Financial Expert