Premium
ON THE DIFFERENCES BETWEEN THE MARGINAL PRODUCT OF CAPITAL ACROSS COUNTRIES
Author(s) -
FERREIRA ALEX LUIZ
Publication year - 2011
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2009.02163.x
Subject(s) - ceteris paribus , economics , investment (military) , per capita , marginal product of capital , marginal utility , per capita income , monetary economics , capital (architecture) , marginal product , product (mathematics) , macroeconomics , microeconomics , capital formation , production (economics) , financial capital , population , demography , geometry , archaeology , mathematics , sociology , politics , political science , law , history , profit (economics)
We extended the standard neoclassical model of investment for the case of an open economy. Our model shows that risk premium not only creates a wedge between the marginal product of capital across countries but also reduces an economy's savings rate. A riskier market thus presents a lower income per capita, ceteris paribus . Our empirical analysis, from 1950 to 2003, lends support to the conclusion that both risk and the correction for output price to investment ratio help to explain the differentials.