Capital Output Ratio

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A capital output ratio which is abbreviated as COR is related to be availability of natural resources in a country. It is used to measure the capital ratio that would be used for the production of some output over a certain period of time. The capital output ratio tends to increase if the capital available in a country is cheaper than the other inputs. Therefore, the countries that are rich in natural resources have a low capital output ratio. This is because they can easily substitute the capital with natural resources in order to increase the output. When countries use their natural resources instead of capital then COR reduces. We can take the example of Norway. This country does not have much of the natural resources therefore its capital output ratio is high.

The size of the capital ratio output can only be determined when the amount of capital that has been used for the production of output is known. If depreciation of capital is assumed as constant, then the capital output ratio is calculated by the ratio of GDP invested each year.

Other things that determine the Capital output ratio include innovation and technical progression. If a lot of capital is used in order to undertake some project of technological development, then the Capital output ratio will increase. On the other hand, the countries that are labor intensive i.e. they employ more labor for undertaking a developmental project have a low Capital output ratio.

Apart from all these factors, another thing that can determine the capital output ratio is an investment. The more the rate of investment is, the more will be the Capital output ratio. Similarly, low ratio of investment means low Capital output ratio. Countries which can double its capital in ten years than the one which can double in twenty years will have a higher Capital output ratio.

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