Explain The Causes Of Low Or High Capital Output Ratio In UDCs?

In most of UDCs the natural resources are under utilized or non-utilized. Hence, even with smaller capital investment the larger level of output can be obtained.In additional to natural resources, the other productive resources like labor, management, existing plants and equipment, are under utilized. Therefore, with the smaller amount of capital these resources can be utilized and production can be realized. Accordingly, the value of COR will remain low.

The COR is low in those countries where population is expanding rapidly. The growing population can be used in place of capital, decreasing the capital requirements. Accordingly, the value of COR will be low.In UDCs there is shortage of capital and abundance of labor. Accordingly, there exists a scope of using capital saving techniques in such UDCs, in this way, the value of COR remains low.

So many UDCs in the earlier stages of development concentrate on agricultural development and other labor intensive industries, the COR will be low. For it is possible to have a larger output with a smaller amount of capital.In UDCs the plants and equipments are not fully utilized, as a result, the rate of depreciation and low COR.Lewis is of the opinion that the capital in existence to annual income is much lower in UDCs because their rate of capital accumulation has been much smaller.

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