Weaknesses of Capital Output Ratio

Capital Output Ratio
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Juan Slagter

Weaknesses of Capital Output Ratio

Capital output ratio relates to economic growth through changes in level of investment. But in failing to make the crucial link between differentials within the average rate of profit and magnitude/vector of investment fails to explain/grasp growth and development dynamics other than in tautological form. Which is unable to comprehend overaccumulation of capital on one side and growth without development on the other.

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Weaknesses and Limitations of Capital Output Ratio

  • Its precise calculation is difficult. It would therefore be hazardous to base the estimates of capital re­quirements of an industry or economy on this ratio alone.
  • Also, capital-output ratio is influenced by several variables, e.g., techno­logical improvements, better utilization of equipment, organizational improvements, labour efficiency, and these factors elude quantitative measurement.

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