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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/26444
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| Title: | | The marginal product of capital: a persistent international puzzle  |
| Authors: | | Chirinko, Robert S. Mallick, Debdulal |
| Issue Date: | | 2008 |
| Series/Report no.: | | CESifo working paper 2399 |
| Abstract: | | Large and sustained differences in marginal products of capital (MPKs) across countries are sharply at odds with the core implications of the neoclassical framework. Lucas (1990) and many subsequent studies have examined reasons for this MPK differential. In a recent contribution, Caselli and Feyrer (2007) take the ground out from under this debate by reconsidering measurement issues and concluding that the MPK differential vanishes. Despite Caselli and Feyrer's important advances in measurement, the international MPK puzzle persists. We show that the measurement of MPKs in their framework is substantially affected by adjustment costs in the accumulation of capital. With the proper technology and a plausible parameterization of adjustment costs, the MPK in poor countries is much higher than the MPK in rich countries. Why capital flows do not eliminate the MPK differential remains a persistent international puzzle. We examine the quantitative importance of financial frictions, relative prices, and adjustment costs in accounting for the MPK differential and document that adjustment costs provide the leading explanation. |
| Subjects: | | Marginal product of capital adjustment costs macroeconomic analysis of economic development international capital flows |
| JEL: | | O11 O16 E22 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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