ICOR concept:

The Incremental Capital Output Ratio, or ICOR, is an economic indicator that defines the effectiveness of capital in creating further output, expressing the amount of further investment needed to create an extra unit of GDP or output within the economy.

ICOR Meaning and Importance

• ICOR measures the interaction between investment and follow-on output or GDP growth within an economy, allowing policy makers and analysts to better understand resource usage.
• Low ICOR means greater efficiency—less capital is required to generate a unit of output, a situation desirable for long-term economic growth.
• High ICOR connotes inefficiency, as more capital must be invested for extra output.

Important Points:

• ICOR is a key measure for gauging capital efficiency in economic growth studies.
• It is particularly useful for developing economies focusing on quick, efficient output growth.
• Enhanced technology, infrastructure, and human resource capabilities are chief approaches to slowing down ICOR and increasing sustainable growth.