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Relative Prices and Relative Prosperity

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Author Info
Chang-Tai Hsieh
Peter J. Klenow

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Abstract

The positive correlation between real investment rates and real income levels across countries is driven largely by differences in the price of investment relative to output. The high relative price of investment in poor countries is due to the low price of consumption goods in those countries. Investment prices are no higher in poor countries. Thus, the low real investment rates in poor countries are not driven by high tax or tariff rates on investment. Poor countries, instead, appear to be plagued by low efficiency in producing investment goods and in producing consumer goods to trade for them. (JEL E22, E23, O16, O47)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 97 (2007)
Issue (Month): 3 (June)
Pages: 562-585
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Handle: RePEc:aea:aecrev:v:97:y:2007:i:3:p:562-585

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