The Public and Private Marginal Product of Capital

26 Pages Posted: 6 Mar 2019

See all articles by Matt Lowe

Matt Lowe

Massachusetts Institute of Technology (MIT)

Chris Papageorgiou

International Monetary Fund (IMF) - Research Department

Fidel Perez‐Sebastian

Universidad de Alicante

Date Written: April 2019

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

Lowe, Matt and Papageorgiou, Chris and Perez‐Sebastian, Fidel, The Public and Private Marginal Product of Capital (April 2019). Economica, Vol. 86, Issue 342, pp. 336-361, 2019. Available at SSRN: https://ssrn.com/abstract=3345650 or http://dx.doi.org/10.1111/ecca.12268

Matt Lowe (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Chris Papageorgiou

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Fidel Perez‐Sebastian

Universidad de Alicante

Campus de San Vicente
Carretera San Vicente del Raspeig
San Vicente del Raspeig, Alicante 03690
Spain

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