Estimates of the Marginal Product of Capital, 1970-2000

We compute the marginal product of capital (MPK) taking into account cross-country differences in the relative price of capital in a large panel including 95 countries over the period 1970-2000. Estimates of the price-uncorrected MPK suggest that the marginal product of capital is much larger in poor countries than in rich countries throughout the entire sample period. However, estimates of the price-corrected MPK suggest that differences in the marginal product of capital between rich and poor countries were significant in the 1970's, decreased substantially in the 1980's, and were negligible in the 1990's. In fact, the correlation between price-corrected MPK and GDP per worker is close to zero for most of the 1990's. Furthermore, we find that in both rich and poor countries the capital-output ratio is increasing over time, and while the relative price of capital is slightly decreasing in rich countries it is strongly increasing in poor countries. Counterfactual reallocations of capital that equalize its rate of return around the world would have yielded significant output gains in poor countries in the 1970's, but gains in the 1990's would have been negligible. These findings are robust to alternative rich/poor cut-offs. Our results suggest that international capital markets are largely integrated since the early 1990's.