TY  - JOUR
AU  - Hsieh,Chang-Tai
AU  - Klenow,Peter J.
TI  - Relative Prices and Relative Prosperity
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9701
PY  - 2003
Y2  - May 2003
UR  - http://www.nber.org/papers/w9701
L1  - http://www.nber.org/papers/w9701.pdf
N1  - Author contact info:
Chang-Tai Hsieh
Booth School of Business
University of Chicago
5807 S Woodlawn Ave
Chicago, IL 60637
Tel: 773/8340590
Fax: 484-589-3583
E-Mail: chsieh@chicagoBooth.edu

Peter J. Klenow
Department of Economics
579 Serra Mall
Stanford University
Stanford, CA  94305-6072
Tel: 650/725-8169
Fax: NA
E-Mail: Klenow@Stanford.edu
AB  - 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.
ER  -