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HandoutCapital_s_Share_of_National_Income

HandoutCapital_s_Share_of_National_Income - ”Whe share of...

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Unformatted text preview: ”Whe share of national income earned by holders i of capital is one of the crucial pieces of data that economists examine in studying economic growth. Knowing capital’s share of national income will tell us the value of the key parameter a if the production function is of the Cobb- Douglas form. Figure 3.3 shows data on capital’s share of national income for a sample of 53 countries.* The average share in this sample is 0.35, or almost exactly one—third. Most countries’ capital shares lie fairly near this average, although there are some significant exceptions. For example, in Botswana and Ecuador capital’s share of income is estimated to be 0.55, while in Greece it is esti- mated to be only 0.21. It is also interesting to note that there is no systematic relationship between capital’s share of national income and the level of GDP per capita; countries that are rich do not tend to have either higher or lower capital shares than countries that are poor. (In the United States capital’s share of national income has ranged between 0.25 and 0.35 since 1935.)]C There is no good theory to explain why the share of capital in national income differs among countries as shown in Figure 3.3. One distinct possibility is that this is a case of measurement error. It could be that the true value of capital’s share is the same in every country but that the available measurements contain a good deal of “noise” that makes capital’s share appear to vary. A piece of evidence in favor of this theory is that there tends to be much less variation in the mea- sured share of capital in national income among rich countries (which tend to have better data) than among poor countries. Based on these results, we will use a value of 1/3 as our estimate of 01 throughout this book. Given the messiness of the data, it is unlikely that this estimate is exactly right, but it can serve as a good approximation. y'Bernanke and Gfirkaynak (2002). table 10 and note 18. TGollin (2002). _____________________________—._.———————-——-——- FIGURE 3.3 Capital’s Share of Income in a Cross-Section of Countries ___—_—________—__________—_..——————————-—— Capital's share of national income 1.0 0.9 0.8 0'7 Ecuador 0.6 / . o 0 Botswana 0.5 0 0.4 0.3 / . . South Korea 0.2 ° 0 \\ Greece 0.1 0.0 Sri Lanka 0 5,000 10,000 15,000 00 0 ° \ Spain Average = 0.35 20,000 25,000 30,000 35,000 40,000 GDP per capita in 2000 Source: Bernanke and Giirkaynak (2002), table 10 and note 18. ...
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