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The marginal product of capital

Francesco Caselli and James Feyrer

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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. We use easily accessible macroeconomic data to shed light on this issue, and find that MPKs are remarkably similar across countries. Hence, there is no prima facie support for the view that international credit frictions play a major role in preventing capital flows from rich to poor countries. Lower capital ratios in these countries are instead attributable to lower endowments of complementary factors and lower efficiency, as well as to lower prices of output goods relative to capital. We also show that properly accounting for the 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 not significantly increase these countries' incomes.

Keywords: investment; capital flows (search for similar items in EconPapers)
JEL-codes: O11 E22 O16 O41 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2006-08
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http://eprints.lse.ac.uk/3560/ Open access version. (application/pdf)

Related works:
Journal Article: The Marginal Product of Capital (2007) Downloads
Working Paper: The Marginal Product of Capital (2006) Downloads
Working Paper: The Marginal Product of Capital (2005) Downloads
Working Paper: The Marginal Product of Capital (2005) Downloads
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