Capital deepening
Topic: Economic Growth Theories and Business Cycles · NCERT: Beyond NCERT
Meaning
Capital deepening means that capital per worker rises: each worker gets more or better machines and tools. This raises labour productivity (output per worker), which is a key route to higher wages and living standards. In the Solow growth model, capital per worker is written k. Capital deepening means k goes up. Because of diminishing returns, each extra unit of k adds less output than the one before.
Example
A textile unit in Tiruppur has 100 workers and 50 machines. It buys 50 more machines without hiring anyone. Capital per worker doubles from 0.5 to 1 machine, and each worker can now produce more cloth.
Don't confuse with
- Capital widening: here capital grows only as fast as the labour force, so capital per worker (k) stays the same. The economy gets bigger, but output per worker does not rise.
Related concepts
- Solow growth model
- Steady state
- Growth accounting
- Total factor productivity
- Convergence
- Endogenous growth theory