Abstract
Reverse capital deepening is the property whereby it may be efficient to associate a lower (higher) rate of interest with a lower (higher) capital per worker. This property is inconsistent with the traditional belief that, by virtue of the substitution principle, production techniques that are more ‘capital intensive’ will become optimal as the rate of interest is lowered. Reverse capital deepening is an important instance of the apparent paradoxes associated with indirect effects in a production economy. It entails that technical choice cannot be considered a monotonic function of the rate of interest, and questions the widespread policy implications of the traditional view.
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Scazzieri, R. (2018). Reverse Capital Deepening. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_1440
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DOI: https://doi.org/10.1057/978-1-349-95189-5_1440
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