- Incremental Capital Output Ratio (ICOR) measures additional capital needed.
- It shows how much additional capital is required to produce one additional unit of output.
- Formula: ICOR = (Change in capital / Change in output).
- It represents how efficiently new capital is used.
- A lower ICOR means more efficient use of new capital.
- Investment % in GDP = ICOR x % change in GDP.
- A lower ICOR allows for higher economic growth with less investment.
- Or, it can achieve the same growth with less investment.
- ICOR depends on governance, labor quality, education, skills, and technology.