Capital Output Ratio and Economic Development

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Capital Output Ratio > Forum > Capital Output Ratio and Economic Development

Capital Output Ratio and Economic Development
Anonymous
What is the role of capital output ratio in economic development?
 

 
Relationship Between Investments and Economic Growth
Anonymous
Capital output ratio is useful for economic planning. Suppose a government targets an economic growth of 6% for next year. The current capital output ratio in this country is 4. This means that in order to realize 6% growth, investments should be increased to 24% (6 x4).
Capital output ratio thus explains the relationship between the level of investment and the corresponding economic growth. There is a simple economic equation that shows thus relationship between investment, capital output ratio and economic growth:
Economic Growth = Savings as a percentage of GDP / Capital Output Ratio
Or
EG = S / V
Here, G is economic growth, S is saving as a percentage of GDP and V is the capital output ratio.
 

 
Relationship Between Capital Output Ratio and Economic Development
Anonymous
The Capital Output Ratio reflects how much capital a country must save or a borrow abroad for domestic investment in order to attain a certain rate of economic growth.
 

 
Capital-Output Ratio in Underdeveloped Countries
Anonymous
It is agreed that capital-output ratio in underdeveloped countries is generally higher, i.e., the capital is less productive in them than in developed countries. This is so because there is a relative inefficiency of the industries which produce capital goods.
 

     
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