Extensive and intensive growth in a neoclassical framework

Extensive growth based on the expansion of inputs is likely to be subject to diminishing returns. Therefore it is often viewed as having no effect on per-capita magnitudes in the long run. This essay argues that periods of extensive growth through capital accumulation may be a precursor to periods of intensive growth during which output per unit of input grows through endogenous technical change. Such a sequence of stages of development occurs as capital accumulation affects the incentives to engage in labor-saving technical change. A steady rise in the capital-labor ratio affects the relative scarcity of factors of production, their (expected) relative price, and induces innovation investments.