Federal Reserve Bank of Minneapolis
Research Department Sta¤ Report ???
December 8, 2007
Where Did Capital Flow? Fifty Years of International Rate of
Return Di¤erentials and Capital Flows
Lee E. Ohanian
University of California, Los Angeles and NBER
Mark L. J. Wright
PRELIMINARY AND INCOMPLETE
We thank David Lagakos, Bernardo Cruz Morais, and Paulina Restrepo for research assistance above and
beyond the call of duty.
1. Introduction
World capital ‡ows are substantial. Since 2000, gross world capital ‡ows have averaged about 25 percent of world GDP per year, while net capital ‡ows have been in excess of
4 percent of world GDP. Figure 1 shows these net ‡ows as a fraction of world gross domestic
product (GDP) over this period. Robert Lucas (1990) presumed that poor countries would
have higher marginal products of capital (MPKs) than rich countries, and thus asked why
capital doesn’t ‡ow from the rich to the poor. There have been many proposed answers
to Lucas’s question, including the hypothesis that poor countries have low total factor productivity (TFP), low human capital, and/or that poor countries tend to disproportionately
con…scate capital. Nevertheless, the organizing principle behind Lucas’s analysis, as well as
the broader implications of standard optimal growth theory, predict that capital should ‡ow
from countries with low marginal products of capital (MPKs) to countries with high MPKs.
.05
Net Capital Flows / GDP
.04
.03
.02
.01
1950
1960
1970
1980
1990
2000
Year
But does capital ‡ow to locations with a relatively high marginal product/high rate of
return? We address this question by constructing a panel database of 200 countries between
1950 and 2005. This set of countries accounts for about 99 percent of world real income
1
in 2005. With this data, we construct two measures of the rate of return to capital. The
…rst measure is from the production side of the economy using the marginal product of
capital. The second measure is from the household side of the economy using the consumer’s
intertemporal marginal rate of substitution.
Our main …nding is that for much of the last half century, capital has not ‡owed from
low return to high return countries, with returns measured either using the MPK or the
IMRS. This …nding holds at the individual country level, and also holds for various levels of
aggregation of countries. Speci…cally, Latin America received signi…cantly more international
capital than is consistent with standard theory, while the Asian tigers received much less
capital than is consistent with standard theory.
These …ndings lead us to restate Lucas’s (1990) puzzle from "why doesn’t capital ‡ow
to the poor", to "why doesn’t capital ‡ow to high return countries"? To address this puzzle,
we assess whether common departures from standard theory, including models of contracting
imperfections, or models with incomplete markets, can shed light on these …ndings. We
…nd that none of these classes of models can su¢ ciently reconcile the fact that capital has
not ‡owed to high return countries. The main reason why existing theory cannot account
for observed ‡ows is that all of these models retain the feature that capital ‡ows from low
to high return countries. Various frictions or market imperfections may limit these ‡ows,
but they do not reverse these ‡ows to low return countries, as observed in the data. We
conclude by discussing possible modi…cations of theories to advance our understanding of
this phenomenon.
The paper is organized as follows. Section 1 describes the panel dataset, with a focus
on constructing capital stock measures and the associated returns. Section 2 presents the
model economy and describes the set of analyses that we carry out. Section 4 presents the
results. Section 5 discusses the implications of the …ndings for di¤erent classes of theoretical
models. Section 7 discusses related literature, and section 8 concludes.
2. Data
This section presents the data that we use to construct our panel dataset. There are
several sources for the data including the World Bank, the OECD, Gronningen, GDC, the
2
United Nations, as well as several country-speci…c data sources. The Appendix presents the
data and sources in detail. We have obtained and/or constructed measures of the following
(real) quantity variables, all measured relative to the adult (16 and over) population: GDP,
consumption, investment, employment, hours (for a small subset of countries), and net exports, which we use to measure capital ‡ows, for the 1950-2005 period. For 19 countries, we
also have some of these measures for the 1900-1930 period as well. For accounting purposes,
note that output is given by:
Y = C + Stat + I + X
M;
where C is private and public consumption, I is private and public investment, X-M is net
exports, and stat is the statistical discrepancy.
A. Capital Stock
We begin with the law of motion for the capital stock:
Kt+1 = It + (1
)Kt
It is standard to use the perpetual inventory method to construct capital stocks. Crosscountry studies that have used this approach include the World Bank wealth study for 2000,
Lane Milesi-Ferretti (), and Nehru and Derashwar (), and King and Levine (). We use 2
approaches to estimate an initial capital stock, both of which use steady state results to infer
the initial stock.
The …rst approach is used by Caselli and Feyer (), which assumes the following relationship between investment in the …rst year and the capital stock:
K0 =
I0
;
g+
where I0 is investment in the …rst year of data,
is the depreciation rate, and g the average
growth rate for investment between the …rst year of data availability and 1970. This result
follows from a steady state growth path in which capital depreciates at rate
and the steady
state growth rate of the economy is g; and I0 is assumed to be the steady state level of
investment. is the steady state investment level scaled by the growth rate of the economy.
3
The second approach to inferring the initial capital stock follows from King and Levine
(), who also exploit steady state results to back out an initial capital stock:
K0 =
I=Y
Y0 ;
g+
where I=Y is measured as the average investment rate for the decade of the 1950s, and Y0 is
the average income for the …rst three years of the sample. King and Levine the growth rate
of the economy, g as follows:
1
3
g = g1950 + gworld ;
4
4
where g1950 is the average growth rate of GDP for the country during the decade of the 1950s,
and gworld is the average growth rate of the world economy over the full sample.
While it is common to use steady state results to construct an initial capital stock,
we note that this assumption will be less accurate for countries that are in the process
of transiting to a steady state. Thus, an alternative approach which combines data on
consumption growth and labor can be used in conjunction with the growth model to estimate
an initial stock for countries that are in the transition process. (Not in this draft).
B. Consumption
We’ll focus on private consumption, and as a robustness check we add government
consumption and the statistical discrepancy as robustness This gives us four measures:
1. private …nal consumption
2. private …nal consumption plus the discrepancy (private …nal consumption etc)
3. total …nal consumption
4. total …nal consumption plus the discrepancy (…nal consumption etc).
C. Labor
Our standard measure for labor will be employment because it is much more widely
available than hours. We note that labor will not be required for the analysis for the case in
which preferences are separable in consumption and leisure.
4
3. Model Economy
We consider the perfect foresight maximization problem for a representative household
in country n :
max E0
1
X
t
U (cnt ; 1
hnt ) ;
t=0
subject to its ‡ow budget constraint
cnt + knt+1 + bnt+1
K
wnt hnt + rnt
+ (1
B
) knt + 1 + rnt
bnt ;
with k0 ; b0 given. We use the standard convention by referring to individual choice variables
with lower case letters (e.g. cnt ) and per-capita variables that the household treats parametrically. Note that we have written factor prices and bond returns as varying across countries.
We interpret these country speci…c prices as capturing country speci…c distortions, which will
be discussed in detail in section 4..
A competitive, representative …rm with a constant returns to scale technology hires
labor and capital to maximize pro…ts:
max F (Knt ; Hnt )
wnt Hnt
rnt Knt
The …rst order conditions for the household and the …rm yield:
U2 (cnt ; (1
U1 (cnt ; (1
U1 (cnt ; (1
hnt ))
= wnt ;
hnt ))
hnt )) = EfU1 (cnt+1 ; (1
U1 (cnt ; (1
hnt )) =
EfU1 (cnt+1 ; (1
K
hnt+1 )) rnt+1
+ (1
) g;
B
hnt+1 )) 1 + rnt+1
g;
To calculate the marginal product of capital and carry out the analysis, we need to
choose functional forms for preferences and the technology. Our speci…cation includes a
Cobb-Douglas technology with a capital share parameter ( ) that in our benchmark parameterization is identical across countries:
1
F (Knt ; Hnt ) = Ant Knt Hnt
;
and we specify logarithmic preferences with a preference share parameter ( ) that is also
identical across countries for our benchmark parameterization:
U (Cnt ; (1
hnt )) = ln Cnt + (1
) ln (1
5
hnt ) ;
The intertemporal marginal rate of substitution is used to construct the return to
B
), the marginal product of capital is used to construct
capital from the consumers side (rnt
K
the return to capital from the production side (rnt
); and the wage is constructed using the
household’s e¢ ciency condition
Cnt+1
1
Cnt
Ynt
=
Knt
(1 hnt ) Lnt
=
;
(1
) Cnt
B
=
rnt
K
rnt
wnt
where later we also consider measuring the return to labor from the estimated marginal
product of labor.
To parameterize the model, we make the following choices. We choose log preferences
over consumption and leisure (log(Ct ) + log(1
h)); and choose a parameter value of
such
that household work one third of their time endowment. We set the capital share parameter
= 0:4; we set the depreciation rate
= 0:05; we set the household discount factor
= 0:95:
Given these choices, we construct the capital stock using the procedures described
K
B
for all n and all t:Note that we estimate two separate
and rnt
above, and then calculate rnt
rates of return, which di¤ers from the more standard “Business Cycle Accounting”procedure
which estimates a single Euler equation wedge between these two objects, and interprets
B
K
time-variation in the di¤erence between rnt
and rnt
as time variation in some capital market
distortion, such as …nancial market imperfections or capital income taxes. This is a valuable diagnostic, as it may shed light on why capital does not ‡ow to high MPK countries.
We therefore also compute the Euler equation wedge, which is equivalent to the following
expression with taxation of capital income:
U1 (Cnt ; (1
=
1
(Cnt+1 ; (1
hnt ) Lnt )
hnt+1 ) Lnt+1 ) (1
Knt ) [Ant+1 F1
6
(Knt+1 ; hnt+1 Lnt+1 ) + (1
)] ;
which can be rearranged to yield the Euler wedge, which is the ratio of the IMRS return to
the MPK return.
1
Knt
U1 (Cnt ; (1
U1 (Cnt+1 ; (1
B
1 + rnt
=
K
1 + rnt
=
hnt ) Lnt )
1
hnt+1 ) Lnt+1 ) Ant+1 F1 (Knt+1 ; hnt+1 Lnt+1 ) + (1
)
Note, however, than a comparison of wedges across countries need not be informative as
to international capital market imperfections: if international markets are competitive but
domestic capital markets di¤er in their levels of imperfection, wedges could vary substantially
across countries. In this case, we would compare the levels of the implied bond and capital
returns, as well as their ratios.
4. Results
In this section, we present our early results on this dataset. In what follows, all bond
returns correspond to our measure using private consumption, while all capital returns are
derived from capital stocks constructed using the Caselli-Feyrer method if estimating initial
capital stocks. Results are similar if the King and Levine method is used.
We begin by examining the relationship between our di¤erent return measures. Figure
One plots the average capital return against the average bond return for each of our countries.
The top panel represents a scatter plot of the relative returns, while the bottom panel weights
each country by its share of world GDP. As can be seen, the relationship between the
return measures is positive, and particularly so once one weights by GDP. In particular, the
correlation between returns measures is 0.25 in the unweighted sample, and rises to 0.51 for
the weighted sample.
7
Bond Return
.3
.2
.1
0
0
.2
.4
.6
.4
.6
Capital Return
Bond Return
.3
.2
.1
0
0
.2
Capital Return
This is consistent with our expectations: countries with high observed capital returns
have faster consumption growth.
Nonetheless, the relationship is not perfect, suggesting
there is a role for various “frictions”within countries –ranging from ine¢ ciencies in domestic
capital markets, to (e¢ cient) adjustment costs –in explaining the pattern of returns. The
relationship is also stronger for rich countries, which is consistent with stronger domestic
…nancial systems in these countries, but also could re‡ect better measurement.
Next, we examine the relationship between returns and capital ‡ows.
Initially, we
focus on net exports as our measure of capital ‡ows. This is for two reasons, one empirical
and one theoretical. The …rst reason is that other measures of capital ‡ows, most notably
the current account, are known to be measured with substantial error. In fact, in some years,
the world is found to have run a massive current account de…cit with itself. As this error is
found to lie mostly within the income side of the current account, we focus on net exports
because it appears to be better measured. The second reason is theoretical: in some models,
net exports are uniquely pinned down while the current account may be indeterminate, as a
result of the sensitivity of factor income to the details of the market environment assumed.
To put it another way, some allocations can be decentralized in multiple ways, and the factor
incomes associated with di¤erent asset market structures can di¤er substantially.
8
The next two …gures presents the relationship between net exports to GDP ratios and
both of our returns measures.
Beginning with the bond return measure, the next graph
shows that the relationship has the expected negative sign: capital ‡ows in to economies (net
exports are negative) with high returns. However, at …rst glance the relationship appears
quite weak.
Indeed, in the top panel, where countries are not weighted, the correlation
coe¢ cient is only -0.11. When countries are weighted by their importance to world GDP,
this correlation coe¢ cient becomes slightly positive 0.06. Nevertheless, the low correlation
is puzzling from the perspective of frictionless models of capital ‡ows.
.25
Bond Return
.2
.15
.1
.05
-.6
-.4
-.2
0
.2
.4
0
.2
.4
Net Exports/GDP
.25
Bond Return
.2
.15
.1
.05
-.6
-.4
-.2
Net Exports/GDP
The relationship appears weaker once we look at capital returns. The top panel of the
next …gure shows that the relationship does not even appear to be negative, with a correlation
coe¢ cient of positive 0.1. When weighted by GDP, the correlation becomes more positive,
as shown in the bottom panel, but remains only 0.17. That is, capital seldom seems to ‡ow
to high return countries and often appears to ‡ow to low return countries.
9
Capital Return
.6
.4
.2
0
-.6
-.4
-.2
0
.2
.4
0
.2
.4
Net Exports/GDP
Capital Return
.6
.4
.2
0
-.6
-.4
-.2
Net Exports/GDP
The fact that the relationship appears stronger, and more negative, for rich countries
is consistent with the view that these countries are better integrated into world …nancial
markets.
It may also suggest that the weak relationship is due to measurement error in
developing countries.
However, we have good reasons to believe that this is not the case.
The next two …gures examine the relationship between returns and capital ‡ows for two groups
of middle income countries. These countries all have very good data, and in particular have
investment data extending back into the early part of the twentieth century, which implies
that returns in the early part of the sample are not driven by our initial estimates of the
capital stock.
The two groups of countries are the Asian Tigers –Japan, Korea, Hong Kong and Singapore –and the Main Latin American countries –Mexico, Argentina, Brazil, Columbia, and
Chile. Individual returns estimates are aggregated by assuming that each region constitutes
one large country with a representative agent. To do this, we convert our data to a common
currency (the US dollar) and then do the same procedures summed over all countries n in
10
region j
B
rjt
K
rjt
P
n Cnt+1
P
=
C
P n nt
Y
P n nt
=
n Knt
1;
:
Note that this implies
1+
B
rjt
P
n Cnt+1
P
=
n Cnt
X Cnt+1 Cnt
P
;
=
Cnt n Cnt
n
so that the bond rate of return is a consumption weighted average of bond returns in all
countries in the region, while
X Ynt Knt
K
P
;
+ rjt
=
K
K
nt
nt
n
n
is a capital stock weighted average. We …nd similar results when using GDP weights, as well
as (for these samples) when using population weights.
The comparison is striking.
For most of the …rst few decades of the sample, both
bond returns and capital returns in Asia were higher than those in Latin America. Despite
this, capital in‡ows into Asia were small, and in some cases, negative implying that capital
‡owed out of this high return region.
By contrast, capital in‡ows to Latin America were
large. By the end of the period, and in particular following the Latin American debt crisis of
the 1980s, capital ‡ows to both Asia and Latin America look more similar, although this is
despite the fact that our estimates imply that returns in Asia were by then somewhat lower
than in Latin America.
It is important to stress that this patter is robust to a number of alternative measurement assumptions. Importantly, in the light of the results of Caselli and Feyrer, these
results on the return to capital are robust to variations in the measurement of the capital
share. One can produce convergence between rates of return in Asia and Latin America in
the latter period by assuming that Asia had a relatively higher capital share. However, this
only serves to widen the di¤erence between rates of return in the early period and intensify
the puzzle of mid twentieth century capital ‡ows.
11
Asia
Latin America
.25
Bond Return
.2
.15
.1
.05
0
1950
1960
1970
1980
1990
2000
1950
1960
1970
1980
1990
2000
1990
2000
1990
2000
1990
2000
Year
Graphs by region1
Preferred Weights
Preferred Weights
Net Exports / GDP
.04
.02
0
-.02
-.04
1950
1960
1970
1980
1990
2000
1950
1960
1970
1980
Year
Graphs by region1
Asia
Latin America
Capital Return
.3
.2
.1
0
1950
1960
1970
1980
1990
2000
1950
1960
1970
1980
Year
Graphs by region1
Preferred Weights
Preferred Weights
Net Exports / GDP
.04
.02
0
-.02
-.04
1950
1960
1970
1980
1990
2000
1950
1960
1970
1980
Year
Graphs by region1
Nonetheless, the patterns found for Latin America and Asia do suggest convergence
in returns over time.
This is, in turn, consistent with an increased level of integration in
international …nancial markets. To examine this more systematically, the next set of …gures
12
plots the preceding relationships over time. We begin with the decade of the 1960s, for which
we have data on more countries, and then proceed by decades, grouping all the years after
1990 together.
The …rst set of …gures examine the relationship between bond and capital returns
by decade.
Returns in each country are transformed by taking the di¤erence form the
world average rate of return constructed as described above. Convergence in returns is thus
represented by a convergence in all points to the origin. This pattern of convergence is indeed
what is observed, with there being notably much less dispersion in the capital rate of return
over time, but also some less dispersion in bond rates of return. The last of this series of
Figures graphs the change in the correlation between our returns measures over time. This
shows that, while the relationship has not gotten noticeably stronger for all countries, it has
become stronger for rich countries with the correlation between the measures in the weighted
sample positive for the past two decades (the half decade from 2000-2005 being the obvious
exception). This is consistent both with an increase in the e¢ ciency with which domestic
…nancial markets work (the increased relationship between bond and capital returns within
countries) as well as with improved operation of international …nancial markets.
1960's
Bond Return
.2
.1
0
-.1
-.1
0
.1
.2
Capital Return
13
.3
.4
.5
1970's
Bond Return
.2
.1
0
-.1
-.1
0
.1
.2
.3
.4
.5
.3
.4
.5
Capital Return
1980's
Bond Return
.2
.1
0
-.1
-.1
0
.1
.2
Capital Return
14
1990-2005
Bond Return
.2
.1
0
-.1
-.1
0
.1
.2
.3
.4
.5
Capital Return
Correlation Between Returns Measures
unweighted
Correlation
1
.5
0
-.5
-1
1950
1960
1970
1980
1990
2000
1980
1990
2000
decade
weighted
1
Correlation
.5
0
-.5
-1
1950
1960
1970
decade
Next we examine the relationship between bond returns and capital ‡ows.
This
relationship does appear to have become more negative over time, although the relationship
is weak.
Indeed, for many years the pattern in the scatter plots looks to have a positive
15
relationship. The last plot graphs the correlation coe¢ cient by decade and shows that the
relation between capital ‡ows and bond returns was close to zero for the middle decades of
our sample, and was weakly negative in both the early and latter decades. Nonetheless, in
many decades the relationship is positive suggesting that international capital markets worked
poorly in the early part of the sample. Perhaps surprisingly, there is positive relationship in
the weighted sample for the half decade since 2000.
1960's
Bond Return
.2
.1
0
-.1
-.6
-.4
-.2
0
Net Exports/GDP
16
.2
.4
1970's
Bond Return
.2
.1
0
-.1
-.6
-.4
-.2
0
.2
.4
0
.2
.4
Net Exports/GDP
1980's
Bond Return
.2
.1
0
-.1
-.6
-.4
-.2
Net Exports/GDP
17
1990-2005
.2
Bond Return
.1
0
-.1
-.6
-.4
-.2
0
.2
.4
Net Exports/GDP
Correlation Between Bond Return and Net Exports/GDP
unweighted
1
Correlation
.5
0
-.5
-1
1950
1960
1970
1980
1990
2000
1980
1990
2000
decade
weighted
1
Correlation
.5
0
-.5
-1
1950
1960
1970
decade
The relationship looks even weaker when examining capital returns, where the relationship looks close to zero in every decade.
However, when weighting by GDP, the last
…gure shows that the correlation was substantially negative for the past three decades.
18
1960's
.5
.4
Capital Return
.3
.2
.1
0
-.1
-.6
-.4
-.2
0
.2
.4
0
.2
.4
Net Exports/GDP
1970's
.5
.4
Capital Return
.3
.2
.1
0
-.1
-.6
-.4
-.2
Net Exports/GDP
19
1980's
.5
.4
Capital Return
.3
.2
.1
0
-.1
-.6
-.4
-.2
0
.2
.4
0
.2
.4
Net Exports/GDP
1990-2005
.5
.4
Capital Return
.3
.2
.1
0
-.1
-.6
-.4
-.2
Net Exports/GDP
20
Correlation Between Capital Return and Net Exports/GDP
unweig hted
Correlation
1
.5
0
-.5
-1
1950
1960
1970
1980
1990
2000
1980
1990
2000
decade
weig hted
1
Correlation
.5
0
-.5
-1
1950
1960
1970
decade
Overall, these pictures paint a picture in which world …nancial markets work at best
only poorly to allocate capital where it has the highest return. Moreover, although there is
substantial evidence that domestic capital markets are working better over time, especially
in rich countries, there is little evidence that capital markets are doing a better job are
allocating capital to the highest return countries. The convergence in capital returns over
time suggests that the costs of this may not be large today, although the costs of capital
market ine¢ ciencies in history may have been much larger (welfare costs to be completed).
A. Returns and the Current Account
Above we worked exclusively with net exports as of measure of capital ‡ows. However,
some models predict a more direct relationship with the current account.
In this subsec-
tion, we suppress our concerns about measurement of the current account and explore this
relationship.
We use data on the current account drawn from Lane and Milesi-Feretti (2006) which
runs from 1970 to the present. The next two …gures examine the relationship graphically.
When we compare the current account surplus as a percentage of GDP to our measure of
the bond return we …nd that the relationship is actually positive, and remains positive when
looking at richer countries: the unweighted correlation coe¢ cient is 0.18 while when weighted
21
by GDP it falls to 0.10. No strong negative relationship emerges when we look at capital
returns with an unweighted correlation of 0.13 and a weighted correlation of -0.17.
Bond Return
.2
.15
.1
.05
-.2
-.1
0
.1
.2
.1
.2
.1
.2
.1
.2
Current Account/GDP
Bond Return
.2
.15
.1
.05
-.2
-.1
0
Current Account/GDP
.5
Capital Return
.4
.3
.2
.1
0
-.2
-.1
0
Current Account/GDP
.5
Capital Return
.4
.3
.2
.1
0
-.2
-.1
0
Current Account/GDP
Some of the theories we examine below suggest that the relationship between returns
and capital ‡ows should be non-linear: negative for capital importers and zero for capital
22
exporters. Inspection of the above graphs reveals little evidence that this is the case. When
we break the sample this way, the correlation between capital ‡ows and the bond return is
0.07 (-0.09 when weighted) for capital importers, and 0.41 (0.71 when weighted) for capital
exporters.
When we examine the relationship with capital returns, a robustly positive
relationship emerges: for capital importers, a correlation of 0.21 (0.17 weighted) while for
capital exporters a correlation of 0.20 (0.42 weighted). That is, the greatest capital exporters
tend to be high return countries.
B. Returns and Asset Positions
Theories of defaultable debt predict that creditor nations should face lower returns
than debtor nations. In this subsection, we examine the relationship between our returns
measures and the stock of external assets, drawing our data from Lane and Milesi-Feretti
(2006). The relationship is examined graphically in the following two …gures. As for the
current account, the relationship looks positive, and strongly so when weighted by GDP.
This is driven in part by the fact that the USA is a large debtor nation, and also faces low
returns, although this pattern is also present in the remainder of the data. The correlations
coe¢ cient between our measure of bond returns and net external assets is 0.15 (falling to
approximately zero when weighted by GDP), while for our measure of capital returns it is
0.18 (falling to-0.08 when weighted by GDP).
23
Bond Return
.2
.15
.1
.05
-2
-1
0
1
2
3
1
2
3
1
2
3
1
2
3
Net External Assets/GDP
Bond Return
.2
.15
.1
.05
-2
-1
0
Net External Assets/GDP
.5
Capital Return
.4
.3
.2
.1
0
-2
-1
0
Net External Assets/GDP
.5
Capital Return
.4
.3
.2
.1
0
-2
-1
0
Net External Assets/GDP
Some of the theories we examine below suggest that the relationship between returns
and foreign net liabilities should be non-linear: negative for net debtors and zero for net
creditors. Inspection of the above graphs reveals some evidence that this is the case: debtors
tend to have a negative relationship but, contrary to theory, creditors have a strong positive
24
relationship. When we break the sample this way, the correlation between net assets and
the bond return is -0.02 (-0.12 when weighted) for debtors, and 0.02 (0.5 when weighted)
for creditors.
When we examine the relationship with capital returns, a robustly positive
relationship emerges: for debtors, a correlation of 0.2 (0.28 weighted) while for creditors a
correlation of 0.23 (0.2 weighted). That is, the greatest capital exporters tend to be high
return countries.
5. Robustness
To what extent could our …ndings be driven by an error in the assumed functional
forms? To what extent could heterogeneity across countries be driven by heterogeneity in
the functional forms? In this section, we consider some possibilities.
A. Preferences
Discount Factors
Clearly, an error in our choice of
implies a level shift in the estimated bond rate for
all countries and leaves our major conclusions una¤ected.
What about heterogeneity in ? Intuitively, if some countries are more patient, their
consumption should grow faster and we should misattribute this to higher rates of return.
To see this, suppose that all countries face the same marginal return on savings so that
Cnt+1
Cn0 t+1
= 1 + rtW =
:
n Cnt
n0 Cn0 t
Suppose we measure
1 + rnt =
Cnt+1
;
Cnt
for some common : Then
1 + rnt
Cnt+1 =Cnt
=
=
0
1 + rn t
Cn0 t+1 =Cn0 t
Then if
n
>
n0
n
:
n0
so that country n is more patient than n0 ; we will estimate higher interest
rates for country n:
In future, we plan to “test” this view by comparing our estimates of these rates of
return with observables by country. For example, if rich countries have lower rates of return,
25
this would require rich countries to be less patient. But we typically think of them as being
more patient (which is why they are rich). We could also directly examine relationships to
wealth or changes in wealth too.
Elasticities of Substitution
Clearly, an incorrect speci…cation here implies a proportional error in the estimated
bond rates, and leaves our main results qualitatively una¤ected.
In fact, if elasticities of
substitution are lower than one, our method implies greater dispersion in bond returns as
higher interest rates are required to induce consumers to accept higher rates of consumption
growth.
What about heterogeneity?
If countries are growing, then consumption will grow
faster for countries with the highest intertemporal elasticity of substitution (lowest
0
s in a
CRRA speci…cation). This would be misattributed as higher rates of return as well. To see
this, suppose that all countries face the same marginal return on savings so that
1
n
Cnt+1
Cnt
= 1 + rtW =
1
n0
Cn0 t+1
Cn0 t
:
Suppose we measure
1 + rnt =
1
Cnt+1
Cnt
;
then
Cnt+1 =Cnt
Cn0 t+1 =Cn0 t
1 + rnt
=
1 + rn0 t
Hence, if
) so that
=
=
1 + rtW
=
=
1 + rtW
^
n
1=
1 + rtW
1=
( (1 + rtW ))
=
(
n
n0
!
n0
n)
n0
:
n n0
1 + rtW > 1; if n has a higher intertemporal elasticity of substitution (or lower
n0
n
< 0; we will estimate n as having a higher rate of return.
Non-homogeneity
There are clearly many forms of non-homogeneity we could consider. One possibility
that might be especially relevant in comparisons involving developing economies is to include
26
some form of subsistence consumption level. Intuitively, poor countries would be less likely
to substitute intertemporally, and thus with ‡atter consumption pro…les we would impute
lower rates of return on bonds.
To see this, suppose that
U (C) = ln C
C :
Then if capital markets were perfect, the actual consumption pro…le would satisfy
Cnt+1 C
=
Cnt C
1 + rtW :
Then if we measure
1 + rnt =
1
Cnt+1
Cnt
we would get
1 + rnt = 1 + rtW +
C 1
Cnt
1 + rtW
:
If rates of return exceed discount rates so that consumption is growing, the second term is
negative, and will be more negative the smaller is Cnt (that is, the poorer the country).
In future, we examine this possibility by examining more closely the relationship between our measures and income per capita.
Preference Non-separability
Suppose preferences were the following
1
(C L1
U (C; L) =
1
)
:
Then marginal utilities are given by
C L1
1
C
L1
Then the Euler equation takes the form
1
Ct L1t
Ct+1 L1t+1
Ct
1
L1t
Ct+11 L1t+1
= 1 + rtW :
27
If we estimate
1 + rnt =
1
Cnt+1
Cnt
1
Cnt
Cnt+1
;
then
1 + rnt =
=
and so
h
1 + rW (Lt =Lt+1 )(1
1 + rnt
(Lnt =Lnt+1 )
=
^(
1 + rn0 t
(Ln0 t =Ln0 t+1 )
(1
) (1
)(1
)
) = ( (1
i
^(
)
= ( (1
)
1))
1)) :
How does this matter? If leisure is increasing faster in n than in n0 ; then the numerator
of the square bracket is greater than one. The exponent of this term is always positive,
and so the implied interest rate in n is larger.
Why?
Because leisure is growing, and
increases in leisure increase the marginal utility of consumption, the country defers more
consumption.
This appears to imply a higher interest rate.
In future, we examine this
implication empirically.
B. Heterogeneity in Technology
Di¤ erent Capital Shares
Clearly, if a country has higher capital shares than average, our method will understate
returns for that country. How can we ensure that capital is appropriately measured? There
are two main issues involved. The …rst is the treatment of proprietors income. In particular,
the wage income of the self-employed is often treated as capital income. This is especially
important in poor countries which are concentrated in industries like agriculture in which self
employment is more important. Gollin (2002) proposes several adjustments to income share
estimates to re‡ect this:
1. reweight industries according to US industry weights to produce comparable shares
2. treat all income reported as operating surplus of private unincorporated enterprises
(OSPUE) as labor income
3. allocate income reported as operating surplus of private unincorporated enterprises in
proportion to the split for the rest of the economy
wages share =
Corporate Employee Compensation
GDP indirect taxes OSP U E
28
4. divide NIPA employee compensation by the number of employed workers and use this
to impute wages for the self employed
wages share =
Corporate Employee Compensation
Corporate Share of Employment (GDP indirect taxes)
Bernanke and Gurkaynak note that OSPUE is not available for many countries. As
a result, they impute OSPUE to get
wages share
= Corporate Employee Compensation=
GDP
(1
indirect taxes
Corporate Share of Employment)
T otal P rivate Sector Income
although only for countries with a corporate share of employment larger than 1/2. We also
use these estimated capital shares in our analysis (to be completed).
The second issue concerns the treatment of non-reproducible capital income.
particular, capital income may also include returns to land and natural resources.
In
As an
adjustment for this, Caselli and Feyrer (2006) assume that land and other non-reproducible
capitals earn the same return as reproducible capital, and hence compute the capital share
as
reproducible capital share = (1
wages share)
P kK
;
W
where the wages share is from Bernanke and Gurkaynak, and the value of total wealth and
reproducible capital are from the World Bank. We use Caselli and Feyrer’s measure below
(to be completed).
As might be imagined, any attempt to construct estimates of the wealth of countries
around the world involves making a number of heroic assumptions about the data. For our
purposes, a number of assumptions used by the World Bank survey seem especially problematic as they would seemingly introduce the potential for a upward bias in estimates of
non-reproducible capital for developing countries, which would understate returns in developing countries. For example, the World Bank study assumes that
29
1. urban land value is proportional to total capital stocks: proportion is 24%. This might
overstate nonreproducible wealth in developing countries if an abundance of land in
these countries keeps rents low. This assumption also has the e¤ect of implying large
land shares in the economies of Singapore and Hong Kong.
2. all mineral wealth is calculated using the following approach: take pro…t from activity
at time t and scale it up according to
t
1+
1
r
1
1
(1 + r )T
;
where
r =
r g
;
1+g
r is the social discount rate, and g the rate at which unit rents grow (that is, prices
of commodities).
T is the date resources are expected to run out, and is chosen
by estimating reserves and production levels in each country and assuming constant
production.
countries.
This is then ignored, and a value of 20 is used for all assets and all
g is set relative to r for all countries and commodities in the same way.
The only variation then comes from
t
chosen in some year close to 2000. Note that
if developing countries "over exploit" relative to stock, this will imply they have too
large mineral wealth as
t
will be relatively large (and this wont be compensated for
by shorter extraction times).
3. "pro…ts" for timber, calculate ‡ow of production of timber, and average price from
trade data. A regional average of costs was then subtracted. If poor country in region
has higher costs (lower productivity), it overstates their values.
4. cropland. forecast of rents hold value of production constant between 2020 and 2024.
Developing countries rents are assumed to grow more than twice as fast as in rich
countries. If wrong, then overstates value of developing country crops.
Combined with these concerns, the analysis also produces some strikingly counterintuitive implications for actual capital shares. As a result, we consider an alternative measure
for adjusting capital shares based on Harberger (1978). In particular, drawing on a series
of detailed studies of national accounts in developing countries, Harberger (1978) found that
30
the income to land could be well approximated by taking one third of agricultural income,
plus one-tenth of the imputed rental income of dwellings. We also use Harberger’s approach
below.
It is important to note that making a one-o¤ adjustment to capital shares cannot
change the basic implications of our analysis above. For example, looking at the comparison
between the Asian Tigers and Latin America, increasing the capital share in Asia relative to
Latin America would have the e¤ect of narrowing the rate of return di¤erence in the modern
period, but only at the cost of increasing the rate of return di¤erence in the early period. In
order to argue that the entire picture is being driven by mismeasurement of capital shares,
one needs to argue that the capital share in Asia was relatively low in the early period, and
relatively high in the later period. Another advantage of the Harberger approach is that it
allows us to compute annual estimates of the adjusted capital share.
6. Lessons for Theory
In the last section, we argued that our results imply the existence of substantial frictions in the workings of international, as well as domestic, capital markets. In this section,
we review the implications of the results found above for several di¤erent popular theories of
frictions in capital markets.
A. One Sector Models
We begin by considering one sector models of capital ‡ows. In these models, consumption can be transformed into investment on a one-for-one basis, in the absence of frictions
in domestic …nancial markets. We begin by assuming that only the consumption good can
be transferred internationally, and must be transformed into the investment good using the
domestic economies …nancial system.
We begin by considering the e¤ects of some explicit capital controls, before turning to
the implications of models that limit capital ‡ows using default risk.
Taxes on Borrowing
Suppose the country faces
ct + 1
a Ifat+1 <0g
at+1 + kt+1
(1
) kt = At kt + Rat ;
31
Then optimality implies
8
R
a<0
1 ct+1 < 1 a 1
rtB
=
;
: R 1 otherwise
ct
and
rtK
rtB :
That is, our rates of return would be the same within, but di¤erent across, countries. Moreover, they would only be greater in countries with negative assets.
Tax on Capital Out‡ows
Suppose the country faces
ct + 1
nx+ Ifat+1 Rat >0g
then we have
1+
B
rt+1
=
8
>
>
>
<
>
>
>
:
R
1
(1
nx+
nx+ ) R
(at+1
Rat ) + (kt+1
(1
if at+1
Rat > 0 and at+2
if at+1
Rat
R
0 and at+2
) k t ) = At k t ;
Rat+1
0
K
Rat+1 > 0 = 1 + rt+1 :
otherwise
That is, the relationship between rates of return across countries depends on the change in
net exports from period to period. Symmetric results exist for the case of controls on capital
in‡ows.
Defaultable Debt
There has been a great deal of recent interest in models of defaultable debt in the
tradition of Eaton and Gersovitz (1983).
For the most part, these papers, which include
Arellano (2006), Aguiar and Gopinath (2007), Yue (2007), and Benjamin and Wright (2007)
consider only endowment economies, or, such as with Pitchford and Wright (2007), with very
simple production sectors that do not allow application of our results on di¤erences in the
marginal product of capital and in the intertemporal marginal rate of substitution. In this
subsection, we sketch a simple model of defaultable debt with production and show that it
implies that creditor nations should all face the same interest rate, and that the bond and
capital returns should be equal in creditor countries.
32
Speci…cally, consider a country represented by an agent with the simple loglinear
preferences assumed in Section 2 above.
That country has access to international capital
markets for a single debt instrument that is state non-contingent except for the fact that
it allows the country to default in any state of the world.
That is, the country can issue
defaultable debt which we denote by bt . For simplicity, we will follow much of the literature
in assuming that default leads to in…nite exclusion from …nancial markets.
Under these assumptions, the budget constraint faced by the country is given by
ct + kt+1
(1
) kt
q (kt+1 ; bt+1 ; st ) bt+1
At k t
bt ;
while competition in international …nancial markets implies that the bond price satis…es
q (kt+1 ; bt+1 ; st ) =
where
1
(kt+1 ; bt+1 ; st )
;
R
(kt+1 ; bt+1 ; st ) is the probability that a country defaults, and R is the gross world
interest rate as before.
Clearly, the probability of default (and the way it varies with the countries choice of
capital stock and debt level) will be the primary determinants of the bond and capital rates
of return in equilibrium. This may, in general, be quite complicated, as it depends on the
exact shape of the probability distribution governing At : Moreover, the non-convexity of
the constraint set implies implied by the discrete choice to default or repay can lead to the
existence of multiple equilibria. However, it is straightforward to establish that if a country
is a creditor in international capital markets, then they must face the international rate of
return R:
Proposition 1. If b < 0; the probability of default is zero for all states s and all capital stocks
k:
Proof. A country defaults in state s given k and b if and only if the value to repaying the debt
V R (k; b; s) is less than the value to default V D (k; b; s) : The value to repayment satis…es the
functional equation
V R (k; b; s) = max
u (c) + E [V (k 0 ; b0 ; s0 ) js] ;
0 0
c;k ;b
33
subject to
c + k0
(1
q (k 0 ; b0 ; s) b0
)k
A (s) k
b;
where V (k; b; s) = max V R (k; b; s) ; V A (k; b; s) : Similarly, the value to default satis…es
the functional equation
V A (k; b; s) = max
u (c) + E V A (k 0 ; s0 ) js ;
0
c;k
subject to
c + k0
But if b
(1
)k
A (s) k :
0; we have that
V R (k; b; s)
max
u (c) + E [V (k 0 ; 0; s0 ) js]
0
c;k
s:t: c + k 0
(1
)k
A (s) k
b
max
u (c) + E V A (k 0 ; s0 ) js
0
c;k
s:t: c + k 0
(1
)k
A (s) k
b
> max
u (c) + E V A (k 0 ; s0 ) js
0
c;k
s:t: c + k 0
(1
)k
A (s) k
= V A (k; b; s) ;
where the …rst inequality follows from the fact that forcing the country to choose b0 = 0
shrinks the countries choice set, the second inequality follows from the de…nition of V; and
the third inequality follows from b < 0 and the fact that V A is strictly increasing.
Hence, if b
0; q (k; b; s) = 1=R: While the non-convexity of the overall borrowing
problem means that the value function need not be di¤erentiable, if we assume that the
optimal choice is at a point where the value function is di¤erentiable then we recover the
result that the intertemporal marginal rate of substitution is equated to the marginal product
of capital and are equal to the world interest rate.
Limited Commitment and Default Risk
Another popular class of models assume that capital ‡ows to a country are limited
by that countries inability to commit to repay their debt. Unlike the models of defaultable
34
debt above, securities markets are assumed to be complete, while access to these markets
is limited so that default does not occur in equilibrium. Once again, most applications of
these models (for example, Kletzer and Wright 2001 or Wright 2005) involve endowment
economies, although versions of these models with production have been studied by Kehoe
and Perri (2002) and Wright (2003). In this section, we sketch the implications of this class
of models for our measures of returns, using a simple deterministic approximation to these
models.
In particular, suppose the country faces the budget constraint
ct + at+1 + kt+1
(1
) kt = At kt + Rat ;
and faces a sequence of constraints that ensures that the future utility it receives from engaging in international trade be larger than some function of its capital stock
1
X
t
ln Cs
V (kt ) ;
s=t
for all t: This resembles the participation constraints found in many models of international
capital ‡ows with sovereign risk. In this case, we get that
P
s
1 + t+1
s
B
1 + rt+1 = R
> R;
Ps=0
t
s
1 + s=0
s
where
s
is the multiplier on the period s participation constraint. Similarly,
K
1 + rt+1
=R+
t+1
V 0 (kt+1 ) :
t+1
That is, in this class of models we know the following facts. First, since negative next
exports implies
t+1
= 0 in these models, net importers of capital face domestic interest rates
that are equal, and are equal to world rates. Second, if participation constraints bind, both
domestic rates will be higher than world rates, but need not be ordered.
7. Related Literature
Caselli and Feyer (2007) , and Gourinchas and Jeanne (2005) are related in that they
discuss the implications of di¤erences in either the marginal product of capital or investment
rates across countries for the e¢ ciency of capital markets. The analysis presented here is
su¢ ciently di¤erent as to complement these other studies.
35
Caselli and Feyer address whether there are large di¤erences in the marginal product
of capital across countries, with a focus on 1996 data from the Penn World Tables. Thus,
the focus on one year in their analysis di¤ers from the 50 year panel focus of our analysis.
They …nd that the marginal product of capital is quite similar across countries in 1996 after
using World Bank estimates to adjust capital’s share of income for non-reproducible factors of
production, including land and natural resources, and after making adjustments for di¤erences
in the relative price of investment goods. They also conduct an analysis over time, and …nd
that the MPK di¤erences are smaller today than they were 30 years ago, which leads them
to conclude that international credit market distortions have declined over time.
Our results also suggest a decrease in the variance of the MPK across countries, despite
the fact that we did not make adjustments for land or for di¤erences in the relative price
of capital across countries. Regarding these adjustments, di¤erences in the relative price of
capital across countries do not change the implication that capital should ‡ow from low MPK
to high MPK countries. We choose a standard value for the capital share, rather than adjust
the share for variations in land/natural resources. We have not yet made these adjustments
since there is no canonical procedure for doing this, particularly over time1 . Caselli and
Feyer’s conclusion that international credit market imperfections are unimportant is but one
interpretation of the fact that marginal products of capital are less diverse today than 50
years ago. Standard closed economy growth theory generates the same implication, with
some countries, such as the U.S. and Europe on their steady state growth paths, and other
countries, such as the Asian Tigers, catching up.
8. Conclusion
Theory implies that capital should ‡ow from low return countries to high return countries. For much of the last half century, however, international capital ‡ows have been the
opposite; low return geographic regions, such as Latin America, have received considerably
more capital than high return regions such as East Asia. This …nding re-states the puzzle
posed by Robert Lucas from "Why doesn’t capital ‡ow to poor countries", to "Why doesn’t
1
A puzzling issue is that reproducible capital share adjusted for land is quite low, less than 20 percent in
the U.S. and Canada, and close to zero in countries such as Burundi and Bolivia.
36
capital ‡ow to high return countries".
The tendency for capital to ‡ow to high return countries is a robust prediction across
various classes of models. The main reason is that these models incorporate features that
tend to limit the size of ‡ows from low return to high return countries, but not the direction
of the ‡ows. Thus our …ndings, whilst con…rming the presence of substantial capital market
imperfections, is also a challenge to the standard approaches to modeling such imperfections.
37
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41
9. Data Appendix
A. Main Data Sources
Data on the expenditure side of the national income and product accounts was taken
from a number of di¤erent sources. In all cases, data in local currency units was used, in both
constant and current prices. As a general rule, we began with the OECD Annual National
Accounts for industrial countries from 1970 to the present, and with the World Bank’s World
Development Indicators for all other countries and for the period 1960 to the present. Gaps
in these data sources, including data for the period from 1950 to 1960, were …lled in …rst
using the World Bank’s World Savings Database described in Loayza et al (1999).
this, the United Nations National Accounts database was used.
After
Local curreny unit data
from versions 6.2 and 5.6 of the Penn World Tables was then used.
Finally, a number of other o¢ cial and country speci…c sources, described below, were
used to …ll in remaining gaps. Finally, in a small number of cases, data on the expenditure
accounts in current values was used along with the GDP de‡ator to …ll in remaining gaps.
The other world and region speci…c sources used include:
1. Mitchell, B. R. 2003. International historical statistics : Africa, Asia & Oceania, 17502000. New York: Palgrave Macmillan.
2. Mitchell, B. R. 2003. International historical statistics : the Americas, 1750-2000. New
York: Palgrave Macmillan.
3. Mitchell, B. R. 2003. International historical statistics. Europe, 1750-2000. New York:
Palgrave Macmillan.
4. Eurostat.
5. The Asian Development Bank’s Key Indicators.
6. The Economic Commission for Latin America and the Carribean’s (ECLAC) Statistical
Yearbook for Latin America and the Carribean.
7. Statistics available from the website of the Economic Community of West African States.
8. The Organization for European Economic Cooperation’s Statistics of National Product
and Expenditure.
42
9. Maddison, Angus. 1991. Dynamic Forces in Capitalist Development: A Long-Run
Comparative View. Oxford: Oxford University Press.
10. The Oxford Latin American Economic History Database http://oxlad.qeh.ox.ac.uk/search.php.
11. The Nordic Historical National Accounts Database http://www.nhh.no/forskning/nnb/.
12. Statistical Yearbook of the League of Nations
Country speci…c sources are listed in the next subsection.
B. Country Speci…c Sources
In the following sections, we describe how country speci…c data sources were integrated
into the analysis. We also list a number of country speci…c sources which were consulted but
not used in the analysis, but which may prove useful to other researchers.
1. Hofman, A. A. 2000. "Standardised capital stock estimates in Latin America: a 1950-94
update " Cambridge Journal of Economics, 24:1, pp. 45-86.
2. Perez-Lopez, Jorge and Carmelo Mesa-Lago. 1985. "A study of Cuba’s material product system, its conversion to the system of national accounts, and estimation of gross
domestic product per capita and growth rates." World Bank Sta¤ Working Paper, 770.
3. Jackson, Marvin. 1985. "National Accounts and the Estimation of Gross Domestic
Product and Its Growth Rates for Romania." World Bank Sta¤ Working Paper, 774.
4. Park, Jong-goo and Shamsher Singh. 1985. "National accounts statistics and exchange
rates for Bulgaria." World Bank Sta¤ Working Paper, 771.
5. Campbell, Robert. 1985. "The conversion of national income data of the U.S.S.R. to
concepts of the system of national accounts in dollars and estimation of growth rate."
World Bank Sta¤ Working Paper, 777.
6. Fallenbuchl, Zbigniew 1985. "National income statistics for Poland, 1970-1980." World
Bank Sta¤ Working Paper, 776.
7. Levcik, Friedrich and Peter Havlik. 1985. "The gross domestic product of Czechoslovakia, 1970-1980." World Bank Sta¤ Working Paper, 772.
43
8. Hewett, Ed. 1985. "The gross national product of Hungary : important issues for
comparative research." World Bank Sta¤ Working Paper, 775.
9. Marer, Paul. 1985. Dollar GNPs of the USSR and Eastern Europe. Washington D.C.:
World Bank.
10. Easterly, William and Stanley Fischer. 1995. "The Soviet Economic Decline." World
Bank Economic Review, 9:3, pp. 341-71. (Bernardo has the data from this paper).
11. Easterly, William and Stanley Fischer. 1994. "The Soviet Economic Decline: Historical
and Republican Data" NBER Working Paper, 4735.
12. United States. Congress. Joint Economic Committee. 1982. USSR : measures of
economic growth and development, 1950-80 : studies. Washington: U.S. G.P.O. : For
sale by the Supt. of Docs., U.S. G.P.O.
13. http://src-home.slav.hokudai.ac.jp/database/SESS.html
14. Pryor, Frederic L. 1985. "Growth and Fluctuations of Production in O.E.C.D. and East
European Countries." World Politics, 37:2, pp. 204-37.
15. Eastern Europe: Thad P. Alton
16. Pryor, Frederic L. and George J. Staller. 1966. "The dollar values of the gross national
products in Eastern Europe 1955." Economics of Planning, 6:1, pp. 1-26.
17. Dobrinsky, Rumen, Dieter Hesse, and Rolf Traeger. 2006. "Understanding the LongTerm Growth Performance of the East European and CIS Economies." United Nations Economic Commission For Europe Discussion Paper, 2006:1. [Review alternative
sources for Eastern Europe]
18. Lancieri, Elio. 1993. "Dollar GNP estimates for Central and Eastern Europe 1970-90:
a survey and a comparison with Western countries." World Development, 21:1, pp.
161-75.
19. Pamuk, Sevket. 2006. "Estimating Economic Growth in the Middle East since 1820."
Journal of Economic History, 66:3, pp. 809-28.
20. The Statistical Service of the Republic of Cyprus: http://www.mof.gov.cy/.
21. Data from the Kingdom of Bahrain Ministry of Finance http://www.mofne.gov.bh/
22. Data from the Maltese Ministry for Investment, Industry and Information Technology
http://www.miti.gov.mt/
44
Argentina
1. Della Paolera, Gerardo, Alan M. Taylor, and Carlos G. Bózzoli. 2003. "Historical
Statistics," in A new economic history of Argentina. Gerardo Della Paolera and Alan
M. Taylor eds. Cambridge ; New York: Cambridge University Press, pp. 376-85.
2. Taylor, Alan M. 2003. "Capital Accumulation," in A new economic history of Argentina. Gerardo Della Paolera and Alan M. Taylor eds. Cambridge ; New York:
Cambridge University Press, pp. 170-96.
3. Balboa, Manuel and Alberto Fracchia. 1959. "Fixed Reproducible Capital in Argentina,
1935-55." Review of Income and Wealth, 8, pp. 274-92.
Australia
Data on the entire expenditure side of the accounts back to 1900 was taken from M.
Butlin (1977). Data on gross domestic product and …xed capital expenditure was extended
back until 1861 using data in N. Butlin (1964).
1. Butlin, Matthew. 1977. "A Preliminary Annual Database 1900/01 to 1973/74." Reserve
Bank of Australia Research Discussion Paper, 7701.
2. Butlin, N. G. 1964. Investment in Australian economic development, 1861-1900. Cambridge [Eng.]: University Press.
3. Butlin, N. G. and W. A. Sinclair. 1986. "Australian Gross Domestic Product 17881860: Estimates, Sources and Methods." Australian Economic History Review, 26:2,
pp. 126-47.
4. Butlin, N. G. 1986. "Contours of the Australian Economy 1788-1860." Australian
Economic History Review, 26:2, pp. 96-125.
5. Maddock, R and Ian W. McLean eds. 1987. The Australian Economy in the Long Run.
Cambridge: Cambridge University Press.
45
Austria
1. Gross, Nachum Theodor. 1966. "Industrialization in Austria in the nineteenth century
". University of California, Berkeley.
2. Schulze, Max-Stephan. 2000. "Patterns of growth and stagnation in the late nineteenth
century Habsburg economy." European Review of Economic History, 4:3, pp. 311-40.
3. Fellner, F. von. 1923. "Die Verteilung des Volksvermögens und des Volkseinkommens
der Länder der Ungarischen Heiligen Krone zwischen dem heutigen Ungarn und den
Successionsstaaten." Metron, 3, pp. 226-305.
4. Osterreichisches Statistisches Zentralamt. 1979. Geschichte und Ergebnisse der zentralen amtlichen Statistik in èOsterreich 1829-1979 : Festschrift aus Anlass des 150jèahr.
Bestehens d. zentralen amtl. Statistik in èOsterreich. Wien: èOsterr. Staatsdruckerei
in Komm.
5. Komlos, John. 1983. The Habsburg monarchy as a customs union : economic development in Austria-Hungary in the nineteenth century. Princeton, N.J.: Princeton
University Press.
Belgium
1. van Meerten, Michelangelo. 2003. Capital formation in Belgium, 1900-1995. Leuven;
Brussels: Leuven University Press; Koninklijke Vlaamse Academie van Belgièe voor
Wetenschappen en Kunsten.
2. Buyst, Erik. 1997. "New GNP Estimates for the Belgian Economy During the Interwar
Period." Review of Income and Wealth, 43:3, pp. 357-75.
3. Horlings, Edwin. 2002. "The International Trade of a Small and Open Economy. Revised Estimates of the Imports and Exports of Belgium, 1835-1990." NEHA-Jaarboek,
65, pp. 110-42.
46
Brazil
1. Contador, Cláudio R. and Cláudio L. Haddad. 1975. "Produto Real, Moeda e Preços: A
Experiência Brasileira no Período 1861-1970." Revista Brasileira de Estatística, 36:143,
pp. 407-40.
2. Patriota, Antãonio. 1961. The economic development of Brazil; a historical and quantitative study. [Stanford, Calif.: Hispanic American Studies, Stanford University.
3. Joint Working Group of the Banco Nacional do Desenvolvimento Econãomico (Brazil)
and the Economic Commission for Latin America. and Banco Nacional do Desenvolvimento Econãomico (Brazil). 1956. The economic development of Brazil. New York:
United Nations Dept. of Economic and Social A¤airs.
Bulgaria
1. Rangelova, Rossita. 2000. "Bulgaria’s National Income and Economic Growth, 191345." Review of Income and Wealth, 46:2, pp. 231-48.
2. Chakalov, Asen. 1946. Natsionalniiat dokhod i razkhod na Bulgariia, 1924-1945. So…ia,
Pechatnitsa Knipegraf,.
3. Chakalov, Asen Khristov. 1962. Formi razmer i deæinost na chuzhdiëiìa kapital v
Bæulgariëiìa, 1878-1944. So…ëiìa: Bæulgarska akademiëiìa na naukite.
Canada
1. Firestone, O. J. 1958. "Canada’s Economic Development 1867-1953." Review of Income
and Wealth, 7:1.
2. Firestone, O. J. 1958. Canada’s economic development, 1867-1953; with special reference to changes in the country’s national product and national wealth. London: Bowes
& Bowes.
3. Statistics Canada. Construction Division. 1983. Fixed capital ‡ows and stocks :
historical, 1936-1983. Ottawa: Minister of Supply and Services Canada.
47
4. Leacy, F. H., Statistics Canada., and Social Science Federation of Canada. 1999. "Historical statistics of Canada." 2nd ed. Published by Statistics Canada in joint sponsorship with the Social Science Federation of Canada: Ottawa.
5. Meltz, Noah M. and Canada. Dept. of Manpower and Immigration. Research Branch.
1969. Manpower in Canada, 1931-1961; historical statistics of the Canadian labour
force. [Ottawa]: Research Branch, Program Development Service, Dept. of Manpower
and Immigration.
6. Urquhart, M. C. 1993. Gross national product, Canada, 1870-1926 : the derivation of
estimates. Kingston, Ont. [Canada] ; Bu¤alo, N.Y.: McGill-Queen’s University Press.
7. Altman, Morris. 1999. "New Estimates of Hours of Work and Real Income In Canada
from the 1880s to 1930: Long-Run Trends and Workers’Preferences." Review of Income
and Wealth, 45:3, pp. 353-72.
8. The Historical Statistics of Canada produced by Statistics Canada: http://www.statcan.ca/bsolc/engl
516-X
Chile
1. Mamalakis, Markos. 1978. Historical statistics of Chile : national accounts. Westport,
Conn.: Greenwood Press.
2. Braun, Juan, Matías Braun, Ignacio Briones, José Díaz, Rolf Luders, and Gert Wagner.
2000. "Economía Chilena 1810-1995: Estadísticas Históricas." Universidad Católica de
Chile Documento de Trabaj, 187.
China
1. Wu, Harry X. 2002. "How Fast Has Chinese Industry Grown? Measuring the Real
Output of Chinese Industry, 1949-97 " Review of Income and Wealth, 48:2, pp. 179204.
48
Czechoslovakia
1. Pryor, Frederic L., Zora P. Pryor, MilošStadnik, and George J. Staller. 1971. "Czechoslovak Aggregate Production in the Interwar Period." Review of Income and Wealth, 17,
pp. 35-59.
Denmark
1. Bjerke, Kjeld Haakon and Niels Ussing. 1958. Studier over Danmarks nationalprodukt,
1870-1950. København: [G.E.C. Gad].
2. Bjerke, Kjeld. 1955. "The National Product of Denmark, 1870-1952." Review of Income
and Wealth, 5:1, pp. 123-51.
Egypt
1. Hansen, Bent and G. A. Marzouk. 1965. Development and economic policy in the UAR
(Egypt). Amsterdam: North-Holland Pub. Co.
2. Yousef, Tarik M. 2002. "Egypt’s Growth Performance Under Economic Liberalism: A
Reassessment With New GDP Estimates, 1886–1945 " Review of Income and Wealth,
48:4, pp. 443-612.
3. Hansen, Bent and Donald Mead. 1965. "THE NATIONAL INCOME OF THE U.A.R.
(EGYPT) 1939-62." Review of Income and Wealth, 11:1, pp. 232-56.
4. Hansen, Bent. 1979. "Income and Consumption in Egypt, 1886/1887 to 1937." International Journal of Middle East Studies, 10:1, pp. 27-47.
Finland
1. Hjerppe, R. 1996. "Finland’s Historical National Accounts 1860-1994: Calculation
Methods and Statistical Tables." Jyväskylä University Department of History, Publications of the Finnish History, 24.
49
France
1. Toutain, Jean-Claude. 1987. Le Produit Intérieur Brut de la France de 1789 a 1982.
Paris: I.S.M.E.A.
2. Lâevy-Leboyer, Maurice and Franðcois Bourguignon. 1990. The French economy in
the nineteenth century : an essay in econometric analysis. Cambridge, England ; New
York: Cambridge University Press.
3. Villa, Pierre. 1993. Une Analyse macroâeconomique de la France au XXe siáecle. Paris
[France]: CNRS âeditions.
4. Perroux, Par Francois. 1955. "PRISE DE VUES SUR LA CROISSANCE DE L’ECONOMIE
FRANCAISE, 1780-1950." Review of Income and Wealth, 5:1, pp. 41-78.
5. Perroux, Franclois. 1953. "LA CROISSANCE ECONOMIQUE FRANCAISE." Review
of Income and Wealth, 3:1, pp. 45-66.
6. Crouzet, Francois. 2003. "The historiography of French economic growth in the nineteenth century." The Economic History Review, 56:2, pp. 215-42.
Germany
The primary source for historical data on Germany (pre 1945) and on Western Germany (pre 1991) were Kirner (1968) and Germany (West) Statistisches Bundesamt (1972).
Some data on German national accounts during the second world war was taken from Maddison (1986) who in turn makes use of estimates from United States Strategic Bombing Survey
(1945).
1. Kirner, Wolfgang. 1968. Zeitreihen für das Anlagevermögen der Wirtschaftsbereiche in
der Bundesrepublik Deutschland. Berlin: Duncker & Humblot.
2. Albrecht Ritschl’s data page: http://www2.wiwi.hu-berlin.de/institute/wg/ritschl/al_histdat.html
3. Roskamp, Karl W. 1965. Capital formation in West Germany. Detroit: Wayne State
University Press.
4. Marschak, Jacob and Walther Lederer. 1936. Kapitalbildung. London [etc.]: W. Hodge
and Company, limited.
50
5. Ho¤mann, Walther, Franz Grumbach, and Helmut Hesse. 1965. Das Wachstum der
deutschen Wirtschaft seit der Mitte des 19. Jahrhunderts. Berlin, New York: SpringerVerlag.
6. Jostock, Paul. 1955. "The Long-Term Growth of National Income in Germany." Review
of Income and Wealth, 5:1, pp. 79-122.
7. Stolper, Wolfgang F. 1961. "NATIONAL ACCOUNTING IN EAST GERMANY."
Review of Income and Wealth, 9:1, pp. 178-205.
8. Stolper, Wolfgang F. 1959. "THE NATIONAL PRODUCT OF EAST GERMANY."
Kyklos, 12:2, pp. 131-66.
9. Stolper, Wolfgang F. 1960. The structure of the East German economy. Cambridge:
Harvard University Press.
10. Ritschl, Albrecht and Mark Spoerer. 1997. "Das Bruttosozialprodukt in Deutschland nach den amtlichen Volkseinkommens- und Sozialproduktstatistiken 1901-1995."
Jahrbuch für Wirtschaftsgeschichte:2, pp. 11-37.
11. Burhop, Carsten and Guntram B. Wol¤. 2005. "A Compromise Estimate of German Net National Product, 1851–1913, and its Implications for Growth and Business
Cycles." The Journal of Economic History, 65, pp. 613-57.
12. Ritschl, Albrecht. 2004. "Spurious growth in German output data, 1913 - 1938."
European Review of Economic History, 8:2, pp. 201-23.
13. Sleifer, Jaap. 2006. Planning ahead and falling behind : the East German economy in
comparison with West Germany 1936-2002. Berlin: Akademie Verlag.
14. Germany (West). Statistisches Bundesamt. 1958. Bevölkerung und Wirtschaft, Langfristige
Reihen 1871 bis 1957 fèur das Deutsche Reich und die Bundesrepublik Deutschland.
Stuttgart: Kohlhammer.
15. Germany (West). Statistisches Bundesamt. 1972. Bevölkerung und Wirtschaft, 18721972. Stuttgart: W. Kohlhammer.
16. United States Strategic Bombing Survey. 1945. The e¤ects of strategic bombing on the
German war economy. [Washington]: Over-all Economic E¤ects Division.
51
Hungary
1. Eckstein, Alexander. 1955. "National Income and Capital Formation in Hungary,
1900-1950." Review of Income and Wealth, 5:1, pp. 152-223.
India
1. Heston, Alan. “National Income”in The Cambridge Economic History of India, Volume
2 c.1751–c.1970. Edited by Dharma Kumar, Meghnad Desai. Cambridge, Cambridge
University Press, 1983.
2. 1960. "Papers on national income and allied topics." v. Asia Publishing House: New
York, N. Y.
3. Natarajan, B. An Essay on National Income and Expenditure in India. Madras: Economic Advisor to the Government of Madras, 1949.
4. Rao, V. K. R. V. and Dadabhai Naoroji. 1939. An essay on India’s national income,
1925-1929. London: G. Allen & Unwin ltd.
Indonesia
1. Mansvelt, W. M. F. and P. Creutzberg. 1979. National income. The Hague: Nijho¤.
2. van der Eng, Pierre. 1997. "Gauging Growth: Development of National Accounting in
Indonesia." ASIAN Historical Statistcs Project Newsletter, 4.
Israel
1. Metzer, Jacob. 1998. The divided economy of mandatory Palestine. Cambridge ; New
York: Cambridge University Press.
52
Italy
The primary source for historical Italian data on gross doimestic product and capital
expenditure was Fua (1965).
1. Fenoaltea, Stefano. 2006. "The Reconstruction of Historical National Accounts: The
Case of Italy." IEHC: Helsinki.
2. Fenoaltea, Stefano. 2005. "The growth of the Italian economy, 1861-1913: Preliminary
second-generation estimates." European Review of Economic History, 9:3, pp. 273-312.
3. Fuá, Giorgio. 1965. Notes on Italian economic growth 1861-1964. Milano: Giu¤ráe.
Jamaica
1. Taylor, LeRoy. 1964. Consumers’expenditure in Jamaica : an analysis of data from the
National accounts (1832-1960), and from the Household budget surveys (1939-1958).
[Mona]: Institute of Social and Economic Research, University of the West Indies,
Jamaica.
2. Thorne, Alfred P. 1965. "Critical Analysis of the Statistical and Economic Factors in
the Growth Rates of Puerto Rico and Jamaica 1950-59 " Review of Income and Wealth,
11, pp. 281-331.
Japan
1. Okawa, Kazushi, Miyohei Shinohara, and Larry Meissner. 1979. Patterns of Japanese
economic development ; a quantitative appraisal. New Haven: Yale University Press.
2. Okawa, Kazushi and Henry Rosovsky. 1973. Japanese economic growth; trend acceleration in the twentieth century. Stanford, Calif.: Stanford University Press.
3. Tsuru, Shigeto and Kazushi Ohkawa. 1953. "LONG-TERM CHANGES IN THE NATIONAL PRODUCT OF JAPAN SINCE 1878." Review of Income and Wealth, 3:1,
pp. 19-44.
53
4. Yamada, Yuzo. 1955. "NOTES ON INCOME GROWTH AND THE RATE OF SAVING IN JAPAN A Brief Survey of Recent Estimates made by Research Workers at
Hitosubashi University." Review of Income and Wealth, 5:1, pp. 224-42.
5. United States Strategic Bombing Survey. 1946. The e¤ects of strategic bombing on
Japan’s war economy. Washington, D. C.: Over-all Economic E¤ects Division.
Korea, South
1. Cha, Myung Soo and Nak Nyeon Kim. 2006. "Korea’s First Industrial Revolution,
1911-40." Naksungdae Institute of Economic Research Working Paper Series, 2006:3.
2. Timmer, Marcel P. and Bart van Ark. 2002. "Capital Formation and Productivity
Growth in South Korea and Taiwan: Beating Diminishing Returns through Realising
the Catch-Up Potential." Groningen Growth and Development Centre Research Memorandum.
3. Hwang, Insang and Kåonosuke Odaka. 2000. The long-term economic statistics of
Korea : 1910-1990 : an international workshop. Tokyo: Institute of Economic Research,
Hitotsubashi University.
4. Pyo, Hak K. 1996. Historical Statistics of Korea: Investment and Capital Stock. Seoul:
Institute of Economic Research, Seoul National University. (in Korean)
5. Suh, Chang Chul. 1978. Growth and structural changes in the Korean economy, 19101940. Cambridge, Mass.: Council on East Asian Studies, Harvard University : distributed by Harvard University Press.
Netherlands
1. van Bochove, Corneliu A. and Theo A. Huitker. 1987. "Main National Accounting Series, 1900-1986." Netherlands Central Bureau of Statistics, National Accounts Research
Division, Working Paper, 17.
2. Smits, Jan-Pieter, Edwin Horlings, and Jan Luiten van Zanden. 2000. "Dutch GDP
and its Components, 1800-1913." Groningen Growth and Development Centre Research
Memorandum, 5.
54
Nigeria
1. Okigbo, P. 1962. "Nigerian National Accounts, 1950-7." Review of Income and Wealth,
1962, pp. 285-306.
Pakistan
1. Abbas, S. A. 1963. "Capital Formation in National Accounting, with Particular Reference to Pakistan." Review of Income and Wealth, pp. 235-46.
2. Khan, Tau…q M. 1963. "Capital Formation in Pakistan " Review of Income and Wealth,
pp. 261-70.
3. Kurosaki, Takashi. 1997. "Pakistan: Border Changes and National Income Statistics."
ASIAN Historical Statistcs Project Newsletter, 6.
Portugal
1. Neves, J. Cesar das. 1994. The Portuguese Economy: A Picture in Figures. XIX and
XX Centuries. Lisbon: Universidade Catolica Editoria.
Russia
1. Gregory, Paul R. 1982. Russian national income, 1885-1913. Cambridge [Cambridgeshire]
; New York: Cambridge University Press.
2. Bergson, Abram. 1961. The real national income of Soviet Russia since 1928. Cambridge: Harvard University Press.
3. Hoe¤ding, Oleg and Rand Corporation. 1954. Soviet national income and product in
1928. New York: Columbia University Press.
4. Moorsteen, Richard Harris and Raymond P. Powell. 1966. The Soviet capital stock,
1928-1962. Homewood, Ill.: R. D. Irwin.
5. Bergson, Abram. 1953. Soviet national income and product in 1937. New York:
Columbia University Press.
55
South Africa
1. Franzsen, D. G. and J. J. D. Willers. 1959. "Capital Accumulation and Economic
Growth in South Africa." Review of Income and Wealth, 8:1, pp. 293-322.
2. Krogh, D.C. and J. J. D. Willertsh. 1962. "Preparation of National Accounting Estimates for South West Africa and a Presentation of Consolidated Series for South Africa,
South West Africa and the Three British Protectorates (1920-59) " Review of Income
and Wealth, pp. 206-32.
Spain
1. Cubel, Antonio and Jordi Palafox. 2002. "El Stock De Capital Productivo De La
Economía Española. 1900-1990." Instituto Valenciano de Investigaciones Económicas
Working Paper, 2002:6.
2. Prados de la Escosura, Leandro. 2003. El progreso económico de España, 1850–2000.
Bilbao: Fundacion BBVA.
Switzerland
1. Andrist, Felix , Richard G. Anderson, and Marcela M. Williams. 2000. "Real Output
in Switzerland: New Estimates for 1914-47." Federal Reserve Bank of St Louis Review,
2000:05, pp. 43-70.
2. Ritzmann-Blickenstorfer, H. 1996. Historical Statistics of Switzerland. Zurich: Chronos
Verlag.
Syria
1. Himadeh, Sa’id B. 1936. Economic organization of Syria. Beirut: American Press.
56
Taiwan
1. Mizoguchi, Toshiyuki undated. "Estimate of Long-Term National Accounts Statistics
of Taiwan: 1912-1990." Hiroshima University of Economics Working Paper.
Thailand
1. Statistical Year Book of the Kingdom of Siam was …rst published in 1921 (or 1916?).
Has trade and government expenditure data.
2. Miyata, Toshiyuki. 1998. "Trade Statistics in Thailand from 1854 to 1948: Customs
Clearance Data and British Consular Reports." ASIAN Historical Statistcs Project
Newsletter, 10.
Turkey
1. Bulutay, Tuncer, Yahya Sezai Tezel, and Nuri Y¸ld¸r¸m. 1974. Tèurkiye milli geliri,
1923-1948. Ankara: Sevinc Matbaas¸.
2. Eldem, Vedat. 1970. Osmanl¸çImparatorluægunun iktisadi òsartlar¸hakk¸nda bir tetkik.
[Ankara]: Tèurkiye çIðs Bankas¸Kèultèur Yay¸nlar¸.
3. Özel, Işik. 1997. "The Economy of Turkey in the Late Ottoman and Early Republican Periods, 1907-1939: A Quantitative Comparison." History of Turkish Republic.
Bogazici University.
United Kingdom
Data from 1855 to 1950 was taken from Feinstein (1972) and was extended back until
1830 using data in Deane (1968).
1. Feinstein, C. H. 1972. National income, expenditure and output of the United Kingdom,
1855-1965. Cambridge [Eng.]: University Press.
57
2. Je¤erys, James B. and Dorothy Walters. 1955. "National Income and Expenditure of
the United Kingdom, 1870-1952." Review of Income and Wealth, 5:1, pp. 1-40.
3. Deane, Phyllis. 1968. "New Estimates of Gross National Product for the United Kingdom, 1830-1914." Review of Income and Wealth, 14, pp. 95-112.
United States
Data back until 1929 was taken from the Bureau of Economic Analysis.
This was
extended backwards using data in Kendrick (1961), the Gallman series presented in Rhode
(2002), and …nally using data in Berry (1988).
1. Berry, Thomas Senior. 1988. "Production and Population Since 1789: revised GNP
Series in Constant Dollars." Bostwick Paper, 6.
2. Gallman, Robert E. 1966. "Gross National Product in the United States, 1834-1909,"
in Output, Employment, and Productivity in the United States After 1800. Dorothy
S. Brady ed. New York: Columbia University Press, pp. 3-76.
3. Rhode, Paul W. 2002. "Gallman’s Annual Output Series for the United States, 18341909." National Bureau of Economic Research Working Paper Series, No. 8860.
4. Weiss, Thomas. 1989. "Economic Growth Before 1860: Revised Conjectures." National
Bureau of Economic Research Historical Working Paper Series, No. 7.
5. Trescott, Paul B. 1966. "Federal Government Receipts and Expenditures, 1861-1875."
The Journal of Economic History, 26:2, pp. 206-22.
6. Kendrick, John W. 1961. Productivity trends in the United States. Princeton [N.J.]:
Princeton University Press.
Uruguay
1. Rial, Juan. 1980. Estadisticas historicas de Uruguay, 1850-1930 : poblacion, produccion agropecuaria, comercio, industria, urbanizacion, comunicaciones, calidad de vida.
Montevideo: Centro de Informaciones y Estudios del Uruguay.
58
Yugoslavia
1. Vinski, Ivo. 1961. "National Product and Fixed Assets in the Territory of Yugoslavia
1909-1959." Review of Income and Wealth, 9:1, pp. 206-33.
2. Dubey, Vinod and World Bank. 1975. Yugoslavia, development with decentralization
: report of a mission sent to Yugoslavia by the World Bank. Baltimore: Published for
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