New estimates of the marginal product of capital, 1970-2017

Abstract

We estimate the marginal product of capital (MPK) taking into account corrections for the relative price of capital. For a broad panel over the period 1970-2017, we find that since the mid-1980s the price corrected MPK in developing countries is approximately 18%, whereas in developed countries it is close to 14%. Furthermore, since the mid-2000s, we find that the relative price of capital in developing countries converges towards the level of relative price of capital in developed countries. From the early 2000s to 2017, counterfactual reallocations of capital would have yielded substantial output gains for developing countries. However, net gains in world output would be negligible. Estimates generated
from an alternative panel confirm our initial findings. Overall, our results suggest that capital is efficiently allocated across countries, which suggests that the large observed cross-country differences in capital-labor ratios cannot be accounted for frictions in international capital markets.