Working Paper: NBER ID: w9701
Authors: Chang Tai Hsieh; Peter J. Klenow
Abstract: The positive correlation between PPP investment rates and PPP income levels across countries is one of the most robust findings of the empirical growth literature. We show that this relationship is almost entirely driven by differences in the price of investment relative to output across countries. When measured at domestic prices rather than at international prices, investment rates are little correlated with PPP incomes. We find that the high relative price of investment in poor countries is solely due to the low price of consumption goods in poor countries. Investment prices are no higher in poor countries than in rich countries. These facts suggest that the low PPP investment rates in poor countries are not due to low savings rates or to high tax or tariff rates on investment. Poor countries instead appear to be plagued by low efficiency in producing investment goods and in producing exportables to trade for machinery and equipment.
Keywords: No keywords provided
JEL Codes: O4; O1; E2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| PPP investment rates (H43) | income levels (J31) |
| relative prices of investment goods (E22) | investment rates (G31) |
| low relative price of consumption goods (D11) | high relative price of investment (G19) |
| productivity in investment goods sector (E22) | investment rates (G31) |
| inefficiencies in producing investment goods (E22) | low PPP investment rates (F21) |
| differences in productivity between investment and consumption sectors (E20) | investment landscape (G24) |