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UBC Theses and Dissertations

Capital-output ratio and economic development : |b studies in conception and application, with special reference to planning experience in the U.A.R. Korayem, Karima Aly Mohamed


The capital-output ratio has been widely used by economists and econometricians in model building for policy purposes in both developed and developing countries. Particularly in the developing economies, where planning has been an important feature of economic policy, the projection of output and investment requirements in different sectors is often based on the capital-output ratio. In the First Five-Year Plan of the United Arab Republic (U.A.R.), planners have basically used the incremental capital-output ratio for broad general sectors to derive investment requirements therein. The plan's realizations fell short of the target. This was natural and to be expected in a first effort to plan economic development. However, this raises many important questions. Was the discrepancy between the realization and the target in the First Five-Year Plan due to the very nature of the capital-output ratio technique itself? To what extent did changing external conditions lead to such discrepancy? In order to attempt an answer to these questions, it is necessary to be aware of the meaning, limitations and problems of measuring the capital-output ratio. This is the subject matter of Chapter II. Chapter III is devoted to searching the answers to the question raised in the previous paragraph. The trend of the capital-output ratio is vitally important for the developing countries with scarce capital. This is because the higher is that ratio, the more investment will be needed to achieve a certain rate of growth. In our case: What is the likely trend of the capital-output ratio for U.A.R., and what are its implications for the future development of the country? Specifically, will the country face increasing, or diminishing, problems in the future as far as capital financing is concerned? Chapter IV will attempt to frame an answer to these questions based on both, theoretical argument and empirical evidence.

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