Macro: Capital Deepening, Capital Widening

Capital deepening is an economic scenario wherein capital per worker is increasing in the economy. 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 labor. 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 condition for economic development of a country.

Capital widening on the other hand is the economic scenario wherein capital stock is increasing at the same rate as the labor force and the depreciation rate, thus the capital per worker ratio remains constant. The economy will expand in terms of aggregate outputbut productivity per worker will remain constant.

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