A company's capital goods are its long-lasting physical assets, such as machinery and equipment, buildings and tools. These are distinct from consumer goods, which are non-durable and have a short lifespan. Capital goods are used by businesses to produce other products and services for consumers, which drive economic growth. They are also considered a form of investment, as they generate returns from their use over time.
Investing in capital goods helps businesses compete more effectively in the market, and boosts their output and revenue. In turn, this increases employment levels and promotes economic growth. However, demand for capital goods is volatile and can be influenced by economic cycles. During a recession, companies may hold off or cancel their investments in capital goods, reducing demand and resulting in lower revenues.
Technology can influence the development and production of capital goods. For example, advances in materials science enable the construction of lighter and more durable materials, improving the performance and lifespan of capital equipment. Automation and robotics can improve productivity, accuracy and safety in manufacturing processes. The Internet of Things (IoT) and artificial intelligence (AI) can collect data from machines and sensors, and analyze it for predictive maintenance or other useful insights.
Policymakers can encourage technological advance in a variety of ways. One way is to fund research in areas such as genetic information and business software. Another is to create a favorable regulatory environment by reducing bureaucracy, simplifying procedures and establishing clear rules and regulations. Finally, they can negotiate trade agreements that reduce or eliminate barriers to exports.
