It is agreed that capital output ratio in under – developed
countries is generally higher, the capital is less productive in them than in
developed countries. This is so because there is a relative inefficiency of the
industries which produce capital goods. There is the greater wastage of capital
in the process of production due to low level of technical knowledge and there
is the scarcity of economic overheads. Besides, owing to indivisibilities,
certain kinds of investment are bound to be initially underutilized. As
development proceeds, naturally the pattern of demand will shift towards the
more capital intensive industries.
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