The accelerator model of investment provides that the main reason or component of growth in the economy and the GDP is the investment in the region which drives growth. The interest rates in the region also have a direct effect on the investment. “The accelerator model of investment in its empirical formulation dominates nearly all other models of investment behavior throughout the world.” (Bennett, 1987) The multiplier effect is applied in the accelerator model as well, where the degree of investment provides for the multiplied value of the growth in the economy through the increased GDP.
Despite the popularity of the accelerator model, it is constraining and lacking in terms of the determinants of investment and growth in the region. Aside from the interest rates which are considered to be the main determinants of investment in the region., other competitors like the availability of saving to support the investment in the region, the cost of capital in the region, the taxation and fiscal policies of the government as well as legal and institutional structure of the country have a very profound effect on the investment coming in the region and the growth being provided by the level of investment
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