Relative Capital Shortage and Potential Output Constraint: A Gap Approach

J.M. Albala-Bertrand

International Review of Applied Economics, 2007, vol. 21, issue 2, 189-205

Abstract: Focusing on core-infrastructure capital vis-a-vis productive capital, we propose a macroeconomic method to estimate their optimal utilisation ratio in production and their relative shortage in any period. The method is based on an adapted two-gap model, estimated via linear programming, with application to Chile and Mexico over the 1950-2000 period. Core infrastructure appears to support a variable level of productive investment, relative capital shortage alternating and imposing constraints on potential output over time. This suggests an optimal investment trade off, based on a social opportunity cost that derives from the prevailing gap in any period.

Keywords: Capital shortage; potential output; two-gap model (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1080/02692170701189094

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