Meaning: The quote by Toshihiko Fukui, a former governor of the Bank of Japan, reflects on the standard growth theory and its implications for economic development. In essence, the quote suggests that the growth of an economy on a per capita basis is primarily driven by two main factors: capital deepening and total factor productivity (TFP) growth.

Capital deepening refers to the increase in the amount of capital per worker in an economy. This can be achieved through investment in physical capital such as machinery, equipment, and infrastructure. When the capital stock per worker increases, it can lead to higher levels of productivity and economic output, ultimately contributing to economic growth on a per capita basis. Capital deepening is a key driver of economic development, particularly in the context of industrialization and modernization.

Total factor productivity (TFP) growth, on the other hand, refers to the overall efficiency and productivity of all factors of production, including labor, capital, and technology. It represents the portion of output not explained by the amount of inputs used in production. TFP growth is often associated with technological progress, innovation, and improvements in organizational and managerial practices. When TFP increases, it enables more output to be produced from the same amount of inputs, leading to higher levels of economic growth and living standards.

In the context of the quote, Toshihiko Fukui emphasizes the significance of these two factors in driving economic growth on a per capita basis. The standard growth theory, which underpins many economic models and analyses, underscores the importance of capital accumulation and productivity growth in shaping the long-term trajectory of an economy.

Capital deepening and TFP growth are interconnected and complementary drivers of economic development. Investment in physical capital can enhance the productive capacity of an economy, but its impact on growth is often amplified by improvements in total factor productivity. Similarly, technological advances and efficiency gains associated with TFP growth can amplify the returns on capital investment, leading to a virtuous cycle of economic expansion.

From a policy perspective, understanding the dynamics of capital deepening and TFP growth is crucial for formulating strategies to promote sustainable and inclusive economic development. Governments and policymakers often seek to foster an environment conducive to investment in physical capital, such as through infrastructure development, education and skills training, and incentives for private sector investment. At the same time, efforts to promote innovation, research and development, and the adoption of advanced technologies can drive TFP growth and enhance the overall productivity of the economy.

In summary, Toshihiko Fukui's quote encapsulates the core elements of the standard growth theory and underscores the pivotal role of capital deepening and total factor productivity growth in driving economic growth on a per capita basis. By recognizing the significance of these factors, policymakers and economists can better understand the mechanisms of economic development and design strategies to promote sustained and inclusive growth.