Capital deepening is an economy where capital per worker is increasing. This is also referred to as increase in the capital intensity. Capital deepening is often measured by the 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, 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 or some models in endogenous growth theory, capital deepening can lead to sustained economic growth even without technological progress. Traditionally, in development economics, capital deepening is seen as a necessary but not sufficient for economic development of a country.
Capital widening is the situation where capital stock is increasing at the same rate as the labour force and the depreciation rate, thus the capital per worker ratio remains constant. The economy will expand in terms of aggregate output, but productivity per worker will remain constant.
Famous quotes containing the words capital and/or deepening:
“Capital is money, capital is commodities.... By virtue of it being value, it has acquired the occult ability to add value to itself. It brings forth living offspring, or, at the least, lays golden eggs.”
—Karl Marx (1818–1883)
“Each man has his own vocation. The talent is the call. There is one direction in which all space is open to him. He has faculties silently inviting him thither to endless exertion. He is like a ship in the river; he runs against obstructions on every side but one; on that side all obstruction is taken away, and he sweeps serenely over a deepening channel into an infinite sea.”
—Ralph Waldo Emerson (1803–1882)