Autonomous and Induced Investment

Investment in simple words refers to purchasing some asset whether it’s an equity investment or a piece of land or some commodity like gold and silver with the intention of making profit. Investment can be classified as either autonomous or induced investment.

Autonomous investments are those investments which are done for serving the society and not for the intention of making profits. These investment are done by the government when they invest in projects like construction of roads, bridges, dams etc….Autonomous investment are not continuous investment which implies that they can rise or fall as and when government desire. These investments are not affected by rise in raw material price or rise in wages of workers as they are made only for the welfare of people and therefore this type of things does not affect these investments.

Induced Investments are those investments which are made with the intention of generating profit out of such investment. These investments are made by private companies when they see any mismatch between demand and supply of a good they invest in order to fill that gap and earn profit from such venture. This type of investments are affected by many factors like increase in cost of raw materials or rise in interest rate in the economy which increases the cost of borrowing and therefore reducing the margin of profit in such investments. Induced investments can be abandoned anytime when the private company feels that investment is no longer profitable unlike autonomous investments which have to be made despite it being unprofitable.