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The marginal product of capital

Caselli, Francesco and Feyrer, James (2005) The marginal product of capital. 11551. National Bureau of Economic Research, London, UK.

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Identification Number: 11551

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. Attempts to provide an empirical answer to this question have so far been mostly indirect and based on heroic assumptions. The first contribution of this paper is to present new estimates of the crosscountry dispersion of marginal products. We find that the MPK is much higher on average in poor countries. However, the financial rate of return from investing in physical capital is not much higher in poor countries, so heterogeneity in MPKs is not principally due to financial market frictions. Instead, the main culprit is the relatively high cost of investment goods in developing countries. One implication of our findings is that increased aid flows to developing countries will not significantly increase these countries' incomes.

Item Type: Monograph (Working Paper)
Official URL: http://www.nber.org
Additional Information: © 2005 Francesco Caselli and James Feyrer
Subjects: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
Date Deposited: 03 Jun 2008 13:50
Last Modified: 01 Oct 2010 08:54
URI: http://eprints.lse.ac.uk/id/eprint/5289

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