Capital deepening refers to the process of increasing the amount of capital per worker in an economy, which typically leads to enhanced productivity and economic growth. This phenomenon occurs when firms invest in more advanced tools, machinery, or technology, allowing workers to produce more output in the same amount of time. As a result, capital deepening can lead to higher wages and improved living standards for workers, as they become more efficient.
Key factors influencing capital deepening include:
In mathematical terms, if represents capital and represents labor, then the capital-labor ratio can be expressed as . An increase in this ratio indicates capital deepening, signifying that each worker has more capital to work with, thereby boosting overall productivity.
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