Public Policy, Price Distortions, and Investment Rates

Diego Restuccia and Carlos Urrutia ()

No 9910, University of Western Ontario, Departmental Research Report Series from University of Western Ontario, Department of Economics

Abstract: Differences in the relative price of investment over consumption goods across countries are big, even after excluding non-tradable consumption goods. We interpret these differences as arising from differences in a wide range of policies that increase the cost of investment. Under this interpretation, we measure investment distortions using Summers and Heston's data and show that this measure is negatively correlated with investment rates and income per worker in a cross section of countries. We show that the steady state relation between relative investment distortions and relative investment rates predicted by a standard growth model closely resembles what we observe in the data. Moreover, simulations of a calibrated version of the model in which distortions follow a stochastic process common to all countries account for around 90% of the final disparity in relative investment rates. The model, however, cannot account for the disparity in income across countries and its evolution over time.

Date: 1999
New Economics Papers: this item is included in nep-ecm and nep-ets
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://ir.lib.uwo.ca/cgi/viewcontent.cgi?article=1338&context=economicsresrpt (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:uwo:uwowop:9910

Ordering information: This working paper can be ordered from
https://economics.uw ... itting_ordering.html
The price is Paper copy available by mail at a cost of $10.00 Canadian each.

Access Statistics for this paper

More papers in University of Western Ontario, Departmental Research Report Series from University of Western Ontario, Department of Economics Department of Economics, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2.
Bibliographic data for series maintained by ().