The Marginal Product of Capital

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The Marginal Product of Capital

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Caselli, Francesco
Feyrer, James

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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 cross-country 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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5203.

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Date of creation: Aug 2005
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Handle: RePEc:cpr:ceprdp:5203

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Other versions of this item:

Article
- Francesco Caselli, 2007. "The Marginal Product of Capital," The Quarterly Journal of Economics, MIT Press, vol. 122(2), pages 535-568, 05. [Downloadable!] (restricted)
Paper
- Francesco Caselli & James Feyrer, 2005. "The Marginal Product of Capital," NBER Working Papers 11551, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Francesco Caselli & James Feyrer, 2006. "The Marginal Product of Capital," CEP Discussion Papers dp0735, Centre for Economic Performance, LSE. [Downloadable!]

Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-09-29 (All new papers)
NEP-MAC-2005-09-29 (Macroeconomics)

References listed on IDEAS
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