The Incremental Capital-Output Ratio (ICOR) is the ratio of investment to

growth Growth may refer to: Biology * Auxology, the study of all aspects of human physical growth * Bacterial growth * Cell growth * Growth hormone, a peptide hormone that stimulates growth * Human development (biology) * Plant growth * Secondary growth ...

which is equal to the

reciprocal Reciprocal may refer to: In mathematics * Multiplicative inverse, in mathematics, the number 1/''x'', which multiplied by ''x'' gives the product 1, also known as a ''reciprocal'' * Reciprocal polynomial, a polynomial obtained from another pol ...

of the

marginal product of capital In economics, the marginal product of capital (MPK) is the additional production that a firm experiences when it adds an extra unit of capital. It is a feature of the production function, alongside the labour input. Definition The marginal produ ...

. The higher the ICOR, the lower the

productivity Productivity is the efficiency of production of goods or services expressed by some measure. Measurements of productivity are often expressed as a ratio of an aggregate output to a single input or an aggregate input used in a production proces ...

of capital or the

marginal efficiency of capital Marginal may refer to: * ''Marginal'' (album), the third album of the Belgian rock band Dead Man Ray, released in 2001 * ''Marginal'' (manga) * '' El Marginal'', Argentine TV series * Marginal seat or marginal constituency or marginal, in polit ...

. The ICOR can be thought of as a measure of the

inefficiency Efficiency is the often measurable ability to avoid wasting materials, energy, efforts, money, and time in doing something or in producing a desired result. In a more general sense, it is the ability to do things well, successfully, and without ...

with which capital is used. In most countries the ICOR is in the neighborhood of 3. It is a topic discussed in economic growth. It can be expressed in the following formula, where ''K'' is capital output ratio, ''Y'' is

output Output may refer to: * The information produced by a computer, see Input/output * An output state of a system, see state (computer science) * Output (economics), the amount of goods and services produced ** Gross output in economics, the value o ...

(

GDP Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is ofte ...

), and ''I'' is net investment.

\text = \frac = \frac= \frac

According to this formula the incremental capital output ratio can be computed by dividing the investment share in GDP by the rate of growth of GDP. As an example, if the level of investment (as a share of GDP) in a developing country had been (approximately) 20% over a particular period, and if the growth rate of GDP had been (approximately) 5% per year during the same period, then the ICOR would be 20/5 = 4.

ICOR, world, and determining variables

File:IQuoteWeltEngl.PNG, Investment share File:WeltBIPWorldgroupOECDengl.PNG, Rate of GDP growth File:IcorWorld.PNG, The

of ICOR File:MEoC.png,

Marginal efficiency of capital Marginal may refer to: * ''Marginal'' (album), the third album of the Belgian rock band Dead Man Ray, released in 2001 * ''Marginal'' (manga) * '' El Marginal'', Argentine TV series * Marginal seat or marginal constituency or marginal, in polit ...

as defined in the Ameco data bank of the

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for

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, USA and Japan.

ICOR, world, and determining variables

Further reading