The Marginal Product of Capital

Francesco Caselli () and James Feyrer

CEP Discussion Papers from Centre for Economic Performance, LSE

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.

Keywords: investment; capital flows (search for similar items in EconPapers)
JEL-codes: E22 O11 O16 O41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev and nep-mac
Date: 2006-08
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Related works:
Working Paper: The Marginal Product of Capital (2005)
Working Paper: The Marginal Product of Capital (2005)
Journal Article: The Marginal Product of Capital (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:cep:cepdps:dp0735

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