Relative Prices and Relative Prosperity

The positive correlation between real investment rates and real income levels across countries is driven largely by differences in the price of investment relative to output. The high relative price of investment in poor countries is due to the low price of consumption goods in those countries. Inve...

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Bibliographic Details
Published in:The American economic review 2007-06, Vol.97 (3), p.562-585
Main Authors: Hsieh, Chang-Tai, Klenow, Peter J.
Format: Article
Language:English
Subjects:
Aggregate analysis
Capital accumulation
Capital investments
Consumer goods
Consumer prices
Consumption
Correlation analysis
Developing countries
Discount rates
Domestic prices
Investment
Investment analysis
Investment goods
Investment income
Investment policy
Investment rates
LDCs
Macroeconomics
Price level
Prices
Prosperity
Purchasing power parity
Rates of return
Relative prices
Studies
Tax rates
U.S.A
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Summary:The positive correlation between real investment rates and real income levels across countries is driven largely by differences in the price of investment relative to output. The high relative price of investment in poor countries is due to the low price of consumption goods in those countries. Investment prices are no higher in poor countries. Thus, the low real investment rates in poor countries are not driven by high tax or tariff rates on investment. Poor countries, instead, appear to be plagued by low efficiency in producing investment goods and in producing consumer goods to trade for them.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.97.3.562