The relative price of capital and economic structure

• Main Authors: SAMANIEGO, Roberto, SUN, Juliana Yu
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2020
• Subjects: Economic Theory
• Online Access: https://ink.library.smu.edu.sg/soe_research/2425; https://ink.library.smu.edu.sg/context/soe_research/article/3424/viewcontent/REDtexfileR2_online.pdf
• Institution: Singapore Management University

Are trends in the price of capital technological in nature? First, we find that trends in the relative price of capital vary significantly across countries. We then show that a multi-industry growth model, calibrated to match differences in economic structure around the world and productivity growth rates across industries, accounts for this variation – mainly due to variation in the composition of capital. The finding indicates that the rate of change in the relative price of capital can be interpreted as investment-specific technical change – the extent to which productivity growth is relatively more rapid in the capital-producing sector. The model also accounts for the empirical dispersion of investment rates, but not of rates of economic growth.