International Trade and Composition of Capital Across Countries

45 Pages Posted: 5 Mar 2014

See all articles by Piyusha Mutreja

Piyusha Mutreja

Syracuse University - Department of Economics

Date Written: October 1, 2013


Composition of capital is systematically related to income levels: rich countries have higher shares of equipment in their physical capital than poor countries. I examine the quantitative significance of productivity and trade for capital composition. Rich countries have more equipment capital because they have an absolute advantage in equipment and enjoy efficiency gains from specialization according to comparative advantage. Absence of equipment trade reduces the share of equipment in rich countries to two thirds. Poor countries have less equipment capital because they are inefficient at producing equipment and face large trade costs to export their comparative advantage good in exchange for imported equipment. Removal of these trade costs reduces differences in the share of equipment to approximately one fourth.

Keywords: Equipment capital, Structures capital, Capital goods trade, Capital composition

JEL Classification: E22, F14, F43, O16, O47

Suggested Citation

Mutreja, Piyusha, International Trade and Composition of Capital Across Countries (October 1, 2013). Available at SSRN: or

Piyusha Mutreja (Contact Author)

Syracuse University - Department of Economics ( email )

110 Eggers Hall
Department of Economics
Syracuse, NY 13244
United States


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