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The marginal product of capital

Caselli, Francesco and Feyrer, James (2006) The marginal product of capital. 735. Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Identification Number: 735

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.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2006 F. Caselli and J. Freyrer
Subjects: H Social Sciences > HB Economic Theory
JEL classification: O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E22 - Capital; Investment (including Inventories); Capacity
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
Date Deposited: 28 Feb 2008
Last Modified: 01 Oct 2010 08:50
URI: http://eprints.lse.ac.uk/id/eprint/3560

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