Definition: ICOR basically refers to the additional capital required to generate additional output. The incremental capital output ratio (ICOR) explains the relationship between the level of investment made in the economy and the consequent increase in GDP.
Detail: For example, if the 10% additional capital is required to push the overall output by a percent, the ICOR will be 10. Lower the ICOR, the better it is. ICOR reflects how efficiently capital is being used to generate additional output. So a country with ICOR of 3 is better than a country with ICOR of 5.
