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Definition of Capital Deepening

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Definition: Capital deepening is an increase in capital intensity, normally in a macro context where it is measured by something analogous to the capital stock available per labor hour spent. In a micro context, it could mean the amount of capital available for a worker to use, but this use is rare.

Capital deepening is a macroeconomic concept, of a faster-growing magnitude of capital in production than in labor. Industrialization involved capital deepening - that is, more and more expensive equipment with a lesser corresponding rise in wage expenses.

Capital deepening of a certain input (e.g. a certain kind of capital input, a recent key example being computer equipment) can be measured in the following way. Estimate the growth of the services provided by this input, per unit of labor input, in year T and in year T+1. The growth rate of that ratio is one common measure of the rate of capital deepening.(Econterms)

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