IDEAS home Printed from https://ideas.repec.org/a/fip/fedlrv/00125.html
   My bibliography  Save this article

Should Capital Flow from Rich to Poor Countries?

Author

Listed:
  • Alexander Monge-Naranjo
  • Juan M. Sanchez
  • Raul Santaeulalia-Llopis
  • Faisal Sohail

Abstract

Are human and physical capital stocks allocated efficiently across countries? To answer this question, we need to differentiate misallocation from factor intensity differences. We use newly available estimates on factor shares from Monge-Naranjo, Santaeullia-Llopis, and Snchez (2019) to correctly measure the factor shares of physical and human capital for a large number of countries and periods. We find that the global efficiency losses of the misallocation of human capital are much more substantial than those of physical capital, amounting to 40 percent of the world?s output. Moreover, contrary to the findings of Monge-Naranjo, Santaeullia-Llopis, and Snchez (2019) for physical capital, the global misallocation of human capital does not seem to be subsiding. We argue that the proper measure of global misallocation requires considering the potential gains of reallocating both physical and human capital. In this case, the implied efficiency loses from misallocation are up to 60 percent of global output. Attaining those gains, contrary to the prominent Lucas paradox (Lucas, 1990), would often require physical capital to flow from poor to rich countries.

Suggested Citation

  • Alexander Monge-Naranjo & Juan M. Sanchez & Raul Santaeulalia-Llopis & Faisal Sohail, 2019. "Should Capital Flow from Rich to Poor Countries?," Review, Federal Reserve Bank of St. Louis, vol. 101(4), pages 277-295.
  • Handle: RePEc:fip:fedlrv:00125
    DOI: 10.20955/r.101.277-95
    as

    Download full text from publisher

    File URL: https://research.stlouisfed.org/publications/review/2019/10/15/full-issue.pdf
    File Function: Issue Full text
    Download Restriction: no

    File URL: https://files.stlouisfed.org/research/publications/review/2019/10/15/should-capital-flow-from-rich-to-poor-countries.pdf
    File Function: Article Full text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Francesco Caselli & Antonio Ciccone, 2019. "The Human Capital Stock: A Generalized Approach: Comment," American Economic Review, American Economic Association, vol. 109(3), pages 1155-1174, March.
    2. Robert C. Feenstra & Robert Inklaar & Marcel P. Timmer, 2015. "The Next Generation of the Penn World Table," American Economic Review, American Economic Association, vol. 105(10), pages 3150-3182, October.
    3. Francesco Caselli & Antonio Ciccone, 2019. "The Human Capital Stock: A Generalized Approach Comment," CRC TR 224 Discussion Paper Series crctr224_2019_086, University of Bonn and University of Mannheim, Germany.
    4. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
    5. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
    6. Lee E. Ohanian & Paulina Restrepo-Echavarria & Mark L. J. Wright, 2013. "Bad Investments and Missed Opportunities? Capital Flows to Asia and Latin America, 1950-2007," Working Papers 2014-38, Federal Reserve Bank of St. Louis, revised 04 Nov 2015.
    7. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    8. Pierre-Olivier Gourinchas & Olivier Jeanne, 2013. "Capital Flows to Developing Countries: The Allocation Puzzle," Review of Economic Studies, Oxford University Press, vol. 80(4), pages 1484-1515.
    9. Alexander Monge-Naranjo & Matias Tapia & Veronica Mies, 2018. "On the Assignment of Workers to Occupations and the Human Capital of Countries," 2018 Meeting Papers 1192, Society for Economic Dynamics.
    10. Klein, Paul & Ventura, Gustavo, 2009. "Productivity differences and the dynamic effects of labor movements," Journal of Monetary Economics, Elsevier, vol. 56(8), pages 1059-1073, November.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedlrv:00125. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/frbslus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.