Importance of Capital

Capital plays a vital role in the modem productive system. Production without capital is bard for us even to imagine. Nature cannot furnish goods and materials to man unless he has the tools and machines. Because of its strategic role in raising productivity,

Capital occupies a central position in the process of economic development. In fact, capital formation is the very core of economic development.

Another important economic role of capital formation is the creation of employment opportunities in the country. Capital formation creates employment at two stages. First, when the capital is produced-some workers have to be employed to make capital goods like machinery, factories, dams, irrigation works, etc. Secondly, more men have to be employed when capital has to be used for producing further goods.


Importance of Capital Formation

Capital accumulation is the very core of economic development. It may be a predominately private enterprise system like the American, or a communistic economy like the Soviet, economic development cannot take place without capital accumulation. No economic development is possible without the construction of irrigation works, the production of agricultural tools and implements, land reclamation, building of dams, bridges and factories with machines installed in them, roads, railways, and airports, ships and harbors – all the “produced means of further production” associated with high levels of productivity. It seems unquestionable that the insufficiency of capital accumulation is the most serious limiting factor in underdeveloped countries. In the view of many economists, capital formation occupies the central and strategic position in the process of economic development.