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Updated on March 9, 2011

Capital-intensive Method


Which method is employed in production, whether capital-intensive or labour-intensive, would depend on the capital-labor ratio. The capital-labour ratio is the ratio of the amount of capital to amount of labour, used to produce any given output. If that ratio is high, indicating the use of much capital relative to labour, production is called capital-intensive. If the ratio is low indicating relatively little capital per unit of labour, production is called labour-intensive.

Some people on one side believe labour-intensive method of production will result in increased economic development whereas others on the other side think capital intensive methods will enable developing countries in particular, to grow faster.

Some arguments in Favor of Capital-intensive Methods

1.      Labour is sufficiently available and cheaper in most economies. Labour-intensive method, it is argued therefore could lead to reduced cost of production. Capital however, is scarce and expensive and in the case of less developed economies, has to be imported with scarce foreign exchange. If so, this would increase expenditure on imports and could affect the balance of payment of the economies involved, adversely. For this and other reasons labour-intensive method is favored.

2.      Is is also believed that if labour-intensive methods are employed,  the abundant unemployed labour in most economies today will be employed, thus solving the unemployment problems. If the marginal propensity to consume (MPC) is high, more goods and services would be demanded which will result in economies of scale.

3.      It is also argued that capital intensive method leads to dualism in the economy, so that most of the capital equipment and capital-intensive methods of production are in the urban areas, creating an urban capital center and the labour rural center where jobs and social amenities are inadequately provided. This situation leads to rural-urban migration.

Some Arguments In Favor Of Capital Intensive Methods

1.      It argued that labour-intensive methods do not readily adopt to change. Capital-intensive method can however, easily be adjusted to suit modern trends in production due to their flexibility.

2.      The farmer, for instance using capital-intensive methods of production can produce far more than the one using labour-intensive means. Capital-intensive methods are therefore clearly associated with high levels of output. For this reason poor countries must opt for this method if they increase their pace of development.

3.      It is believed that developed countries such as the United States, Britain, Japan, France, Germany and recently, China have attained their levels of development by adopting capital-intensive methods of production. Therefore developing economies must also invest heavily in this technique of production in order to develop. This is a historical reason rather than an economic one.

In spite of the reasons advanced in favor of the two methods of production, and against the other, it is important that the two techniques of production be married in order for any economy to achieve sustainable economic development.


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      Dhruv 2 years ago

      Thank you for your suggestion.

    • Chrisagbe profile image

      Chrisagbe 6 years ago

      Anon, I quite agree with you on that observation. Thanks for the suggestion.

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      Anon 6 years ago

      One of these headings need to be "Some arguments in Favor of Labour-intensive Methods" as both currently read Some arguments in Favor of Capital-intensive Methods