Composition of Capital and Gains from Trade in Equipment

Mutreja, Piyusha (2016): Composition of Capital and Gains from Trade in Equipment.

Abstract

Composition of capital varies systematically with incomes: rich countries have higher equipment capital shares than poor countries. Also, equipment production is highly concentrated and most countries import equipment. I investigate the quantitative importance of equipment trade for capital composition and how it affects incomes through capital composition. In a multi-country trade model, I show that equipment trade accounts for one-quarter of the cross-country variation in equipment capital share. The decline in equipment trade barriers during 1985-2005 resulted in income gains for all countries. Digging into these income gains reveals that capital composition is an important transmission mechanism: changes in capital composition alone account for 45 percent of the gains, on average.

• Item Type: MPRA Paper
• Language: English
• Keywords: Equipment capital, Structures capital, Capital composition, Trade, Income, Capital goods, Equipment goods
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity; F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence

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