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The Public and Private MPK

Author

Listed:
  • Matthew Lowe
  • Chris Papageorgiou
  • Fidel Perez-Sebastian

Abstract

Why doesn’t capita flow to developing countries as predicted by the neoclassical model? Is the explanation simply that cross-country marginal productivity of capital (MPK) is equalized, and if so, why? We revisit these issues by unpacking MPK into its public and private components, since there is good reason to believe that the process of MPK determination is enormously different across the two sectors especially in developing countries. We do so by calculating MPK schedules across the two sectors, in a large sample of advanced and developing countries. The main findings are twofold: Using updated investment data shows that MPK is not only flat but rather slightly positively sloped. More importantly, this finding is mainly driven by the public sector — public MPK is strongly positively sloped while private MPK is flat. We offer a possible intepretation of this surprising result and advance a new explanation for the Lucas paradox related to the behavior of the public sector.

Suggested Citation

  • Matthew Lowe & Chris Papageorgiou & Fidel Perez-Sebastian, 2012. "The Public and Private MPK," DEGIT Conference Papers c017_021, DEGIT, Dynamics, Economic Growth, and International Trade.
    • Handle: RePEc:deg:conpap:c017_021
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    File URL: http://degit.sam.sdu.dk/papers/degit_17/C017_021.pdf
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    References listed on IDEAS

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    1. Knowles, Stephen, 2001. "Are the Penn World Tables data on government consumption and investment being misused?," Economics Letters, Elsevier, vol. 71(2), pages 293-298, May.
    2. Christophe Hurlin & Florence Arestoff, 2010. "Are Public Investment Efficient in Creating Capital Stocks in Developing Countries?," Economics Bulletin, AccessEcon, vol. 30(4), pages 3177-3187.
    3. Gupta, Sanjeev & Kangur, Alvar & Papageorgiou, Chris & Wane, Abdoul, 2014. "Efficiency-Adjusted Public Capital and Growth," World Development, Elsevier, vol. 57(C), pages 164-178.
    4. Johnson, Simon & Larson, William & Papageorgiou, Chris & Subramanian, Arvind, 2013. "Is newer better? Penn World Table Revisions and their impact on growth estimates," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 255-274.
    5. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
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    Citations

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    Cited by:

    1. Juliana D. Araujo & Povilas Lastauskas & Chris Papageorgiou, 2017. "Evolution of Bilateral Capital Flows to Developing Countries at Intensive and Extensive Margins," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(7), pages 1517-1554, October.
    2. Reinhardt, Dennis & Ricci, Luca Antonio & Tressel, Thierry, 2013. "International capital flows and development: Financial openness matters," Journal of International Economics, Elsevier, vol. 91(2), pages 235-251.
    3. Chassamboulli, Andri & Palivos, Theodore, 2013. "The impact of immigration on the employment and wages of native workers," Journal of Macroeconomics, Elsevier, vol. 38(PA), pages 19-34.
    4. Collier, Paul, 2013. "Aid as a Catalyst for Pioneer Investment," WIDER Working Paper Series 004, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

    marginal product of public and private capital; return to investment; public sector inefficiencies; capital flows; aid;

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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