Glossary term
Physical Capital: Meaning and Definition
Reviewed and approved by Dr. Anamika ShrivastavaPublished Last updated
Physical capital is the stock of man-made, tangible goods, such as machinery, buildings, tools and roads, that is used in producing goods and services. It is built by investment, wears out through use and can be separated from its owner, bought and sold, and moved across countries.
In more detail
Physical capital can be imported, so a country can add to it through trade and investment, whereas human capital must be built within the country through education and health. The two work together: the finest machines cannot raise output unless trained workers can run them, which is why growth depends on both kinds.
Example
A textile mill’s looms and factory building are physical capital; the skill of its weavers is human capital.
Key points
- Tangible and separable from its owner.
- Subject to wear and obsolescence.
- Benefits mainly the owner.
Common mistake
Counting land or money as physical capital in the strict sense.
Related terms
Where it is explained
This term is explained in Class 11 Indian Economic Development Chapter 5: Human Capital Formation in India.