International Differences in Capital-Output Ratios
Abstract
The allocation of investment to particular industries is a major problem in economic projection and planning. The purpose of this paper is to examine the stability of the sectoral incremental capital-output ratios over time and their differences among countries. It is clear that the usefulness of these ratios in projecting capital requirements will depend on how stable they are, at least over the periods used in development programs. Section I examines the problem of measuring the incremental capital-output ratio and lists the factors affecting it. Section II offers the empirical results of the behavior (trend and variability) of the ratio in a number of sectors of several countries. Section III deals with the possibility of misallocation of investment even if the ratio is stable, and offers an interpretation of the findings.
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