Capital output Ratio
Capital-output Ratio meaning. Apart from the ratio of tion to the aggregate national income the r output depend upon the couple outpct capital-output ratio may be defined as the relationship of investment JO a given cc n my or in given time I riod 10 the r I of indu: try f r millar tin put ratio thu dcemu .. ru are. ult r a e-rvcn than a hi~ r capital-ou tal-output ra 10 (If 3 : I lJtJld I an, in Indian rupees. that capital investment (If R , 3 re ults in the addition (If output orth Re. I. I Icncc. given the output. mailer capital investment would be needed if the capital-output ratio is lower than when it is higher. Factors Determining Capital-output Ratio. It is difficult to estimate the capital-output ratio for an economy. The productivity of capital depends upon many factors such as the degree of technological development a .sociated with capital investment. the efficiency of handling new types of equipment. the quality of managerial and organizational skill. he existence and the extent of the utilization of economic overheads and the pattern and rate of investment. For instance. the higher the proportion of investment devoted to 3. Rosen,
Georgo-lnduslriai Changes ill India. 1959. p. 37. the production of direct commodities, the ower the capital-output ratio: and higher the proportion of investment devoted to public utilities. i.e.. ccoriomic and soeial overheads, the igher shall be the capital-output ratio. and vice versa. Higher the investment devoted to heavy industry, the higher will be the capitaloutput ratio. and vice versa. Higher the rate of investment and greater the technological progress, the lower will be the capital- utput atio. TIle capital-output ratio also varies with the prices of inputs. \Vh)’ High in Under-developed Countries. It is agreed that capital- utput ratio in under-developed countries is generally higher. i.e.. the capital is less productive in them than in developed countries. This is o because there is a relative inefficiency of the industries which produce capital goods. There is the greater wastage of capital in the process f production due to low level of technical knowledge and there is the scarcity of economic overheads. Besides. owing to indivisibilitics. ertain kinds of investment arc bound to be initially under-utilized, As development proceeds, naturally the pattern of demand will ‘~hift owards the more capital intensive industries. e timates have been made of capital ir poor countrie . A group of experts United auon used a atio ranging 5 : I The Second Five-Year Plan of assumed an a crage capital-output ratio of 23 : z : IIn the First Five-Year Plan. Kurihara has n th t in most under developed countries the ratJo is of the order of 5 : 1. Singer in his model of ec lie development assumed a ratio of 6 I in the non-agncultur. . r~ctor and 4 : I in the agricultural sector and Rockin-Rodan estimates that.