The Price of Capital: Evidence from Trade Data

36 Pages Posted: 20 Apr 2007 Last revised: 16 Mar 2010

See all articles by Laura Alfaro

Laura Alfaro

Harvard University

Faisal Z. Ahmed

Harvard Business School; Princeton University - Department of Political Science

Date Written: March 16, 2010

Abstract

We use highly disaggregated data on trade in capital goods to study differences in the price of capital across countries. This strategy is motivated by the fact that most countries import the bulk of machinery equipment from a small number of industrialized countries. We find the price of imported capital goods to be negatively and significantly correlated with the income of the importing country. We cross check our results in number of ways. Our results, which differ from findings using Penn World Tables data, caution against discounting a role for the higher price of capital goods in explaining the higher relative price of capital to consumption goods observed in poor countries.

Keywords: Price of Capital Goods, Imports of Machinery, Trade Data

JEL Classification: F1, F2, 03, 04

Suggested Citation

Alfaro, Laura and Ahmed, Faisal Z., The Price of Capital: Evidence from Trade Data (March 16, 2010). Harvard Business School BGIE Unit Working Paper No. 07-073, Available at SSRN: https://ssrn.com/abstract=981215 or http://dx.doi.org/10.2139/ssrn.981215

Laura Alfaro (Contact Author)

Harvard University ( email )

Cambridge, MA 02138
United States

Faisal Z. Ahmed

Harvard Business School ( email )

Soldiers Field Road
Boston, MA 02163
United States

Princeton University - Department of Political Science

Corwin Hall
Princeton, NJ 08544-1012
United States

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