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I quote from the first page of India's Economic Survey 2019 (an official document) -

Investment, especially private investment, is the “key driver” that drives demand, creates capacity, increases labour productivity, introduces new technology, allows creative destruction, and generates jobs.

Does investment directly drive demand? If so, how? I can only see investment leading to higher productivity which increases supply and displaces jobs.
If not, is the increase in demand a ripple effect of investment? If yes, what's the connection?

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  • $\begingroup$ It might be good to note that not all investment is innovative. Sometimes you are just building new things, like a public swimming pool. This will not displace any jobs. Also a newly built sophisticated factory may not replace an older factory, perhaps there was simply nothing there. (Or at least not in the same country.) $\endgroup$ – Giskard Aug 3 at 11:27
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    $\begingroup$ Investment in the sense of new capital goods (buildings, machines, equipment, etc.) directly drives demand in the same way as consumption does for non-capital goods. $\endgroup$ – Henry Aug 3 at 11:58
  • $\begingroup$ @Henry Do you mean to say investment drives demand for capital goods? (Just like consumption drives demand for non-capital goods). But I thought capital goods are themselves considered investment? Please bear with me since I have no background in economics. $\endgroup$ – yathish Aug 3 at 14:38
  • $\begingroup$ @yathish Now you are suggesting a distinction between "is demand" and "directly drives demand". I am not sure it matters $\endgroup$ – Henry Aug 3 at 16:45
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    $\begingroup$ This is too broad. It is true that investment is going to drive demands, but it doesn't mean the outcomes are always positive. E.g. rent seeker may invest in defending their rent/monopoly position. $\endgroup$ – mootmoot Aug 5 at 13:37
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As mentioned by @Henry: investment is itself a demand for capital goods (physical, human, etc.).

If I decide to buy trucks this manifests itself as an increase in demand to the truck factory.

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Seems like this is kind of the logic behind "Says Law".

By a loose chain of logic, increase in investment by firms increases capital stock posessed by firms.This then this increases productivity per worker which in turn increases wages for workers. From these increases in wages workers have more purchasing power.

This logic however ignores any sort of possible existance of labor contracts which keeps wages down when productivity goes up. When discussing the macroeconomy as a whole this isnt so crazy, however this logic is largely dependent on a given country's political economy.

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The most direct way I could think of: investment means construction companies, etc. need to get more workers. These workers will then have higher income and generate more demand.

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