Incremental capital-output ratio

The Incremental Capital-Output Ratio (ICOR), is the ratio of investment to which is equal to 1 divided by the marginal product of capital. The higher the ICOR, the lower the productivity of capital or the marginal efficiency of capital. The ICOR can be thought of as a measure of the inefficiency with which capital is used. In most countries the ICOR is in the neighborhood of 3. It is a topic discussed in Economic growth.

K: capital output ratio
Y: output (GDP)
I: net investment

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.

Investment share

Rate of GDP growth

The reciprocal of ICOR

Marginal efficiency of capital as defined in the Ameco data bank of the European Commission for FRG, USA and Japan.