The Marginal Product of Capital

Francesco Caselli () and James Feyrer

No 5203, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Whether or not the marginal product of capital (MPK) differs across countries is a question that keeps coming up in discussions of comparative economic development and patterns of capital flows. Attempts to provide an empirical answer to this question have so far been mostly indirect and based on heroic assumptions. The first contribution of this paper is to present new estimates of the cross-country dispersion of marginal products. We find that the MPK is much higher on average in poor countries. However, the financial rate of return from investing in physical capital is not much higher in poor countries, so heterogeneity in MPKs is not principally due to financial market frictions. Instead, the main culprit is the relatively high cost of investment goods in developing countries. One implication of our findings is that increased aid flows to developing countries will not significantly increase these countries' incomes.

Keywords: capital flows; investment (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-mac
Date: Written
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Related works:
Working Paper: The Marginal Product of Capital (2005)
Working Paper: The Marginal Product of Capital (2006)
Journal Article: The Marginal Product of Capital (2007)
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