The Incremental Capital-Output Ratio (ICOR) is the ratio of investment to growth which is equal to the reciprocal of the marginal product of capital.
The ICOR can be thought of as a measure of the inefficiency with which capital is used.
[citation needed] 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.
As an example, if the level of investment (as a share of GDP) in a developing country had been (approximately) 20% over a particular period, and if the growth rate of GDP had been (approximately) 5% per year during the same period, then the ICOR would be 20/5 = 4.
[citation needed] This economics-related article is a stub.