Manuscript received 15.4.08; final version received 25.6.09.
ON THE DIFFERENCES BETWEEN THE MARGINAL PRODUCT OF CAPITAL ACROSS COUNTRIES
Article first published online: 8 JUN 2010
© 2010 The Author. The Manchester School © 2010 Blackwell Publishing Ltd and The University of Manchester
The Manchester School
Volume 79, Issue 3, pages 455–479, June 2011
How to Cite
FERREIRA, A. L. (2011), ON THE DIFFERENCES BETWEEN THE MARGINAL PRODUCT OF CAPITAL ACROSS COUNTRIES. The Manchester School, 79: 455–479. doi: 10.1111/j.1467-9957.2009.02163.x
- Issue published online: 19 APR 2011
- Article first published online: 8 JUN 2010
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.