The public and private marginal product of capital

Lowe, Matt; Papageorgiou, Chris; Perez Sebastian, Fidel

Abstract

Why doesn't capital 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 MPK 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 the one from private capital.

Citation

Lowe, M., Papageorgiou, C., & Perez Sebastian, F. (2019). The public and private marginal product of capital. Economica, 86(342), 336-361. https://doi.org/10.1111/ecca.12268

• Journal Article Type: Article
• Acceptance Date: Feb 10, 2018
• Online Publication Date: Jul 21, 2018
• Publication Date: 2019-04
• Deposit Date: Apr 18, 2018
• Publicly Available Date: Jul 22, 2019
• Print ISSN: 0013-0427
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 86
• Issue: 342
• Pages: 336-361
• DOI: https://doi.org/10.1111/ecca.12268
• Keywords: Marginal product of public and private capital; Public sector inefficiencies; Capital flows; Misallocation; The Lucas Paradox
• Public URL: https://hull-repository.worktribe.com/output/788115
• Publisher URL: https://onlinelibrary.wiley.com/doi/abs/10.1111/ecca.12268
• Contract Date: Apr 18, 2018