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Physical Capital - Definition & Advantages of Physical Capital | What is Physical Capital?

Physical Capital, alongside land and labour, is a key factor of production. It comprises tangible assets and infrastructure like machinery, factories, equipment, and transportation networks. These are vital for producing goods and services, and for economic growth and development. 


What Is Physical Capital?

Physical capital includes various assets such as machinery, tools, buildings, infrastructure, vehicles, and technology used in production processes. It's crucial for transforming raw materials into finished goods and enhancing productivity. It's of two types: Fixed Capital (equipment and tools) and Working Capital (inventories). 

Financial capital, like cash, is used to acquire physical capital. While financial capital indirectly supports production, physical capital directly contributes to it. Human capital, on the other hand, includes skills and knowledge that improve productivity. 


Advantages of Physical Capital

Physical capital boosts the economy by increasing productivity and output. It also determines a company's production capacity. With sufficient raw materials and machinery, output levels increase. High-quality physical capital and advanced techniques can enhance production. Additionally, physical capital can be used long-term with proper maintenance. 


How does physical capital impact economic growth?

Investing in physical capital significantly impacts economic growth, contributing to GDP. It improves productivity and has both short-term and long-term effects. For instance, advanced machinery can lead to increased production. 



Physical capital is crucial in transforming raw materials into finished goods. Investments in physical capital are necessary for companies to develop products efficiently and effectively.