# Incremental capital-output ratio

The Incremental Capital-Output Ratio (ICOR), is the ratio of investment to growth 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.

${\displaystyle {\text{incremental capital output ratio}}={\frac {\Delta K}{\Delta Y}}={\frac {\frac {\Delta K}{Y}}{\frac {\Delta Y}{Y}}}={\frac {\frac {I}{Y}}{\frac {\Delta Y}{Y}}}}$

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.