Incremental capital-output ratio
What is the incremental capital-output ratio?
It is the ratio of investment to growth. The higher the incremental capital-output ratio, the lesser the productivity of capital, and the lower the incremental capital-output ratio is equal to the higher productivity of capital. This model is thought of as a measure of inefficiency with regards to capital.
Where have you heard about the incremental capital-output ratio?
The ICOR is often mentioned by economists when talking about financial health in different nations. It is a model that determines the smallest amount of investment capital that is needed for an entity to materialise the next stage of production. This is mainly used to determine a country’s precise level of production efficiency.
What you need to know about the incremental capital-output ratio.
ICOR is calculated as annual investment over annual increase in GDP. For example, if a particular country has an ICOR of 5, then this means that $5 worth of capital investment is needed to create $1 dollar of extra production. However, if this country had a score of 10 the previous year, then this means it has increased its production efficiency. It is widely thought that a developing country can increase its production efficiency at a greater rate than a developed country, as its developed counterpart is already operating at the highest level in terms of up to date technology.