Definitions

Capital deepening

Capital deepening

Capital deepening is a term used in economics to describe an economy where capital per worker is increasing. It is an 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, economic expansion will not continue indefinitely through capital deepening alone. This is partly due to diminishing returns and wear & tear (depreciation).

Capital widening is a term used to describe the situation where capital stock is increasing at the same rate as the labour force, thus capital per worker remains constant. The economy will expand in terms of aggregate output, but productivity per worker will remain constant.

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