Physical capital encompasses all human-made resources used in the production process to generate goods or services. This includes buildings, machinery, equipment, vehicles, and infrastructure that enable businesses and economies to function efficiently.
Physical capital directly increases labor productivity by providing workers with better tools and equipment. Studies show that a 1% increase in physical capital investment can lead to a 0.3-0.5% increase in productivity.
Investment in physical capital is a key driver of economic growth. According to World Bank data, countries with higher physical capital investment typically experience stronger GDP growth rates.
Modern physical capital, especially in technology and machinery, enables the implementation of new innovations and production methods, driving technological progress.
Physical capital consists of tangible, human-made resources used in production, while human capital refers to the knowledge, skills, and experience of workers. Unlike human capital, physical capital depreciates over time and requires regular maintenance.
Physical capital enhances labor productivity by providing workers with better tools and equipment. Modern machinery and technology enable workers to produce more output in less time, leading to increased efficiency and economic growth.
Return on physical capital investment is calculated by comparing the net benefits (increased revenue or cost savings) to the total cost of investment, including purchase price, maintenance, and depreciation. The calculator above can help estimate these returns.