Review of the Theoretical Framework on Investment Decisions

Abstract

The book is about investment in Syria. Investment, however, is as broad a topic in theory as can be. This chapter is a detailed critical account of how modern investment theories fail to fit the Syrian mould. The purpose is to clear the theoretical grounds to make the case for the specificity of the Least Developing Countries (LDCs) in general and Syria in particular. In doing so, I present two salient approaches to the study of investment: the mainstream neoclassical approach and the demand-led approach. The first viewpoint I find it to be wholly inapplicable for the Syrian case. The second perspective or, the demand-management approach, remains ahistorical and is unable to offer a complete picture for analysing investment in Syria. Syria is a developing country that lacks productive capacity and has a small market or labour share, which can only partly drive output via demand stimulation. The question that explains the decision to invest in a given socioeconomic context is theoretically rudimentary. Generally, the basis for any investment decision is the expected rate of profit. From the neoclassical perspective, investment in fixed capital is considered to move a certain stock of capital toward a desired future stock (the neoclassical-Hayekian perspective) for the purpose of profit maximisation. On the flip side, the determinants of investment are also affected by the cost of capital or by supply-side variables.

The determination of investment decisions by, broadly speaking, the level and the rate of change of economic activity ... remains the central pièce de résistance of economics. (Kalecki, 1968: 263)