The Return to Capital in Capital-Scarce Countries

Anusha Chari and Jennifer S. Rhee

No 27675, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper, we use firm-level data to investigate the link between the marginal product of capital and financial rates of return across countries. Computed estimates from financial statement data show that capital-scarce countries display higher marginal products of capital. However, inflation-adjusted financial returns are roughly equal across capital-scarce and capital-abundant countries. The divergence between the marginal products of capital and financial returns implies that there may be little incentive for capital to flow to capital-scarce countries. We suggest that domestic capital-accumulation frictions such as sufficiently large capital adjustment costs can decouple financial rates of return from the marginal product of capital across countries.

JEL-codes: E13 F21 G15 G32 O16 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-mac
Note: DEV EFG IFM
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