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The Public and Private Marginal Product of Capital

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  • Matt Lowe
  • Chris Papageorgiou
  • Fidel Perez‐Sebastian

Abstract

Why does capital not flow to developing countries as predicted by the neoclassical model? What are the direction and degree of capital misallocation across nations? We revisit these questions by removing public capital from total capital to achieve a more accurate estimate of the marginal productivity of private capital. We calculate marginal product of capital schedules in a large sample of advanced and developing countries. Our main result is that, in terms of the Lucas Paradox, private capital is allocated remarkably efficiently across nations. Tentative estimates of the marginal productivity of public capital suggest that the deadweight loss from public capital misallocation across countries can be much larger than that from private capital.

Suggested Citation

  • Matt Lowe & Chris Papageorgiou & Fidel Perez‐Sebastian, 2019. "The Public and Private Marginal Product of Capital," Economica, London School of Economics and Political Science, vol. 86(342), pages 336-361, April.
  • Handle: RePEc:bla:econom:v:86:y:2019:i:342:p:336-361
    DOI: 10.1111/ecca.12268
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    File URL: https://doi.org/10.1111/ecca.12268
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    References listed on IDEAS

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    2. Hüther Michael & Südekum Jens, 2019. "Die Schuldenbremse – eine falsche Fiskalregel am falschen Platz," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 20(4), pages 284-291, December.

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