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The Marginal Product of Capital

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Author Info
Francesco Caselli
James Feyrer

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Abstract

Whether or not the marginal product of capital (MPK) differs across countries is a questionthat keeps coming up in discussions of comparative economic development and patterns ofcapital flows. We use easily accessible macroeconomic data to shed light on this issue, andfind that MPKs are remarkably similar across countries. Hence, there is no prima faciesupport for the view that international credit frictions play a major role in preventing capitalflows from rich to poor countries. Lower capital ratios in these countries are insteadattributable to lower endowments of complementary factors and lower efficiency, as well asto lower prices of output goods relative to capital. We also show that properly accounting forthe share of income accruing to reproducible capital is critical to reach these conclusions.One implication of our findings is that increased aid flows to developing countries will notsignificantly increase these countries' incomes.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0735.

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Date of creation: Aug 2006
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Handle: RePEc:cep:cepdps:dp0735

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Related research
Keywords: investment; capital flows;

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Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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  3. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "Serial Default and the "Paradox" of Rich to Poor Capital Flows," NBER Working Papers 10296, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Caselli, Francesco, 2004. "Accounting for Cross-Country Income Differences," CEPR Discussion Papers 4703, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Cohen, Daniel & Soto, Marcelo, 2002. "Why are Poor Countries Poor? A Message of Hope which Involves the Resolution of a Becker/Lucas Paradox," CEPR Discussion Papers 3528, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  14. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April. [Downloadable!] (restricted)
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  15. Ben S. Bernanke & Refet S. Gurkaynak, 2001. "Is Growth Exogenous? Taking Mankiw, Romer and Weil Seriously," NBER Working Papers 8365, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May. [Downloadable!] (restricted)
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