The paradox of capital intensity

Abstract

Reducing the capital intensity of production makes possible to maintain economic growth at a low rate of capital accumulation. However, the relationship between the development of the knowledge economy and the dynamics of capital intensity is complex. In some periods it is positive, in others it is negative. It is acceptable to analyze the capital intensity paradox by analogy with the productivity paradox (Solow’s paradox). To identify how the paradox of capital intensity can be formed, the article builds up mathematical model of updating the technological base of production. The peculiarity of the model is both its multiphase nature and the differentiation of investments in current production, in basic research, and in applied developments. Logistic functions are used to describe the field of basic research and the field of production. Such functions allow us to take into account the existence of a positive scale effect in these areas and the fact that it persists only up to a certain amount of resources used. The model shows not only the alternation of long waves of technological development, but also the overlapping of waves on each other. An important feature of this model is: the change of phases of development is based on a certain economic logic, and is not set exogenously. An illustrative calculation based on the model was performed, as a result of which the trajectory of changes in the capital intensity of production was obtained. The configuration of this trajectory is close to how the capital intensity of production in the US economy really changed in the period 1960–2022. The proposed model demonstrates the connection of the capital intensity paradox with the periodic updating of general-purpose technologies, with the Kondratiev waves generated by these updates.