Determination of Investment Needs to Pursue Growth Targets through Incremental Capital Output Ratio (ICOR)

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doi:10.35917/tb.v22i1.223

Abstract

This article aims to analyze the effectiveness of investment as measured by the need for investment to produce output at a certain level, which in turn can determine the regional economic growth target. The analytical tool used is the incremental capital output ratio (ICOR) and the determination of economic growth targets. The ICOR value used in this study was calculated using three calculation approaches, namely Lag0, Lag1, and Lag2 data. The data used in this study is data from the economy of the Special Region of Yogyakarta until 2019. The result is that during the research period, there is a correlation between ICOR and economic growth, meaning that the lower the ICOR value, the value of economic growth will also increase. This shows that the effectiveness and efficiency of investment will result in a positive impact on economic growth.

Highlights

Investments are a foundation of a competitive economy and a key tool for the economic system's functioning, raising worker productivity and, as a result, enhancing the population's living standards (Samoylova et al, 2020)
Incremental Capital Output Ratio (ICOR) is a part of descriptive statistics developed related to macroeconomic investment studies (Masloman et al, 2020)
The size of the investment needs needed to be able to meet a certain regional income target or rate of economic growth is given by a measure or economic indicator called the Incremental Capital Output Ratio (Campano et al, 2017)

Summary

Introduction

Investments are a foundation of a competitive economy and a key tool for the economic system's functioning, raising worker productivity and, as a result, enhancing the population's living standards (Samoylova et al, 2020). Improving the effectiveness of regional investment policies is critical for the development of all subjects (Samoylova et al, 2020). Theoretical and empirical studies have shown that the stock of private and public capital has a positive and significant impact on economic growth (Soumaila, 2017; Sedova & Filatov, 2020). In measuring how much additional investment should be needed to increase every one unit in percent of economic growth, to be able to calculate it requires a commonly used calculation ratio such as the Incremental Capital Output Ratio (ICOR). ICOR is a part of descriptive statistics developed related to macroeconomic investment studies (Masloman et al, 2020)

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Conclusion