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The public and private marginal product of capital

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


Matt Lowe

Chris Papageorgiou

Fidel Perez Sebastian


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.


Lowe, M., Papageorgiou, C., & Perez Sebastian, F. (2019). The public and private marginal product of capital. Economica, 86(342), 336-361.

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
Electronic ISSN 1468-0335
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 86
Issue 342
Pages 336-361
Keywords Marginal product of public and private capital; Public sector inefficiencies; Capital flows; Misallocation; The Lucas Paradox
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