Relative Prices and Relative Prosperity
Hsieh, Chang-Tai, and
Peter J. Klenow. 2007. "Relative Prices and Relative Prosperity."
American Economic Review,
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. (JEL E22, E23, O16, O47)
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Klenow, Peter J.