Capital deepening

Capital Deepening is an economic concept that refers to an increase in the amount of capital per worker in an economy. This can occur through an increase in physical capital, human capital, or technology that is used in production. Capital deepening is often associated with increased labor productivity and economic growth.

Overview

Capital deepening is a situation where the capital stock (physical capital) per worker is increasing in the economy. This is often measured by the rate of change in capital stock per labor hour. Over time, capital deepening can lead to increased labor productivity, which can result in economic growth.

Capital deepening can occur through various means. One common method is through investment in physical capital, such as machinery and equipment. This can increase the amount of capital per worker, leading to increased productivity.

Another method of capital deepening is through investment in human capital. This can include education, training, and health improvements that increase the productivity of workers.

Finally, capital deepening can occur through technological progress. Technological advancements can increase the productivity of both physical and human capital.

Effects on the Economy

The effects of capital deepening on the economy can be significant. By increasing the amount of capital per worker, capital deepening can lead to increased labor productivity. This can result in higher wages for workers and increased profits for businesses.

In the long run, capital deepening can lead to economic growth. As labor productivity increases, the economy can produce more goods and services. This can lead to an increase in the standard of living for individuals in the economy.

However, capital deepening can also lead to income inequality. As the capital stock increases, the returns to capital may increase faster than the returns to labor. This can lead to a widening gap between the rich and the poor.

See Also

• Economic growth
• Human capital
• Physical capital
• Income inequality

References

• Economic Growth: The Role of Policies and Institutions. Panel Data Evidence from OECD Countries
• Capital Deepening and Economic Growth in Some Developed Countries