Capital Intensive Industry refers to that industry, which requires substantial amount of capital for the production of goods. In the Capital Intensive Industries proportion of capital involved is much higher than the proportion of labor. This is because the industrial structure and industry type require high value investments in capital Assets. Generally, the capital intensive industries generate high level of profit. The large amount of capital invested in these industries produce high rate of return and this in turn leads to more capital investment.
Capital intensive industries involve high level of fixed cost. For this reason they involve higher degree of risk. If the sales volume declines, profits earned by the industry experience a sharp decrease as the fixed cost part cannot be removed or reduced. So, if market demand declines, then the capital intensive industries suffer from more loss compared to the labor intensive industries.
Automobile industry, chemical industry and oil refinery industry are basically capital intensive industries, which require large capital investment for starting up the business and to run the business as well. Due to the fact that all capital intensive industries require large volume of financial resources for staring up, the number of new entrants to any capital intensive industry is relatively less compared to any labor intensive industry.
The benefit of capital intensive industry is that it promises high level of productivity. This is possible because, the capital investments are used to equip the industry with essential tools and high tech machinery and this use of advanced technology raises the productivity of labor resulting in greater output. As the capital intensity of capital intensive industries result in higher level of productivity, these industries possess the power to generate more income and thus more profit. So, in long run, the capital intensive industries can provide a higher standard of living to any economy.