Measures the amount of capital that is needed to produce one unit of output and therefore is a measure of a country's capital productivity. This is one of two factors that the Harrod Domar Model states can affect economic growth substantially in developing and emerging economies.
Below is an illustration of how important the capital-output ratio is for development in emerging economies. If the capital-output ratio falls this is a positive note for a country's growth rate as it means less capital is needed to produce each extra unit of output. Therefore with the same capital input, output for a country should be boosted and generating a higher level of national income and output. However, if the ratio increases this reduces capital productivity per unit and leads to a lower level of output being produced and economic growth will slow.
