What Is Capital Intensity?

In economics, capital intensity is determined by comparing the total units invested in a business with the total units invested in labor. It is used for comparing industries and for comparing economies and to measure a firm's efficiency.

Capital Deepening

Capital deepening occurs when an economy begins investing more capital per worker and is correlated with increased productivity.

Industries with High Capital Intensity

Some industries that are capital intensive are railroads, oil refineries, airlines and telecommunications industries.

Industries with Low Capital Intensity

Industries with low capital intensity are labor-intensive, such as coal mining and service industries.

Effects

Industries that are capital intensive will tend to have higher initial fixed costs, thus meaning higher barriers to entry. This will lead to fewer competitors.

Difficulties in Measurement

Capital intensity measurement is made more difficult by the fact that an increase in capital intensity can be due to inflation.

References

• Economic Expert
• Investopedia
• Capital intensity- Measurement