Physical Capital

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Definition of 'Physical Capital'

Physical capital, also known as tangible capital or fixed capital, is the value of the physical assets of a company or country, such as buildings, machinery, and equipment. It is one of the three main types of capital, along with financial capital and human capital.

Physical capital is important for economic growth because it can be used to produce goods and services. For example, a factory with machinery can produce more goods than a factory without machinery. Similarly, a country with a lot of infrastructure, such as roads and bridges, can be more productive than a country without infrastructure.

Physical capital can be created through investment. When a company invests in new machinery, it is increasing its physical capital. Similarly, when a government invests in infrastructure, it is increasing the physical capital of the country.

Physical capital can also be depreciated. Depreciation is the decrease in the value of an asset over time due to wear and tear. For example, a machine will lose value over time as it is used. Similarly, a road will lose value over time as it is used by cars.

The value of physical capital is important for economic analysis. Economists use the value of physical capital to calculate the capital stock, which is the total value of all physical assets in an economy. The capital stock is used to calculate the capital-to-labor ratio, which is the ratio of the value of physical capital to the number of workers in an economy. The capital-to-labor ratio is an important indicator of economic productivity.

Physical capital is an important factor in economic growth. However, it is not the only factor. Other factors, such as human capital and technological innovation, are also important for economic growth.

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