Capital deepening is a situation where the

capital Capital and its variations may refer to: Common uses * Capital city, a municipality of primary status ** Capital region, a metropolitan region containing the capital ** List of national capitals * Capital letter, an upper-case letter Econom ...

per worker is increasing in the economy. This is also referred to as increase in the

capital intensity Capital intensity is the amount of fixed or real capital present in relation to other factors of production, especially labor. At the level of either a production process or the aggregate economy, it may be estimated by the capital to labor ratio, ...

. Capital deepening is often measured by the rate of change in capital stock per labour hour. Overall, the economy will expand, and productivity per worker will increase. However, according to some economic models, such as the

Solow model Solow is a surname. Notable people with the surname include: * Alan Solow, American lawyer and Jewish leader * Herbert Solow (journalist) (1903–1964), American journalist * Herbert Franklin Solow (1931–2020), American producer, director, studio ...

, economic expansion will not continue indefinitely through capital deepening alone. This is partly due to diminishing returns and wear & tear (depreciation). Investment is also required to increase the amount of capital available to each worker in the system and thus increase the ratio of capital to labour. In other economic models, for example, the

AK model The AK model of economic growth is an endogenous growth model used in the theory of economic growth, a subfield of modern macroeconomics. In the 1980s it became progressively clearer that the standard neoclassical exogenous growth models were theo ...

or some models in

endogenous growth theory Endogenous growth theory holds that economic growth is primarily the result of endogenous and not external forces. Endogenous growth theory holds that investment in human capital, innovation, and knowledge are significant contributors to economic ...

, capital deepening can lead to sustained economic growth even without technological progress. Traditionally, in

development economics Development economics is a branch of economics that deals with economic aspects of the development process in low- and middle- income countries. Its focus is not only on methods of promoting economic development, economic growth and structural c ...

, capital deepening is seen as a necessary but not sufficient condition for economic development of a country. Capital widening is the situation where the stock of capital is increasing at the same rate as the

labour force In macroeconomics, the workforce or labour force is the sum of people either working (i.e., the employed) or looking for work (i.e., the unemployed): \text = \text + \text Those neither working in the marketplace nor looking for work are out ...

and the depreciation rate, thus the capital per worker ratio remains constant. The economy will expand in terms of aggregate

output Output may refer to: * The information produced by a computer, see Input/output * An output state of a system, see state (computer science) * Output (economics), the amount of goods and services produced ** Gross output in economics, the valu ...

, ''but'' productivity per worker will remain constant.

References

Capital management {{econ-stub

See also

References