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Relative Prices and Relative Prosperity

Author

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  • Chang-Tai Hsieh
  • Peter J. Klenow

Abstract

The positive correlation between real investment rates and real income levels across countries is driven largely by differences in the price of investment relative to output. The high relative price of investment in poor countries is due to the low price of consumption goods in those countries. Investment prices are no higher in poor countries. Thus, the low real investment rates in poor countries are not driven by high tax or tariff rates on investment. Poor countries, instead, appear to be plagued by low efficiency in producing investment goods and in producing consumer goods to trade for them. (JEL E22, E23, O16, O47)

Suggested Citation

  • Chang-Tai Hsieh & Peter J. Klenow, 2007. "Relative Prices and Relative Prosperity," American Economic Review, American Economic Association, vol. 97(3), pages 562-585, June.
  • Handle: RePEc:aea:aecrev:v:97:y:2007:i:3:p:562-585
    Note: DOI: 10.1257/aer.97.3.562
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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