The Price of Capital Goods: A Driver of Investment Under Threat

By Weicheng Lian, Natalija Novta, Evgenia Pugacheva, Yannick Timmer, Petia Topalova

June 28, 2019

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Weicheng Lian, Natalija Novta, Evgenia Pugacheva, Yannick Timmer, and Petia Topalova. The Price of Capital Goods: A Driver of Investment Under Threat, (USA: International Monetary Fund, 2019) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Over the past three decades, the price of machinery and equipment fell dramatically relative to other prices in advanced and emerging market and developing economies. Using cross-country and sectoral data, we show that the decline in the relative price of tangible tradable capital goods provided a significant impetus to the capital deepening that took place during the same time period. The broad-based decline in the relative price of machinery and equipment, in turn, was driven by the faster productivity growth in the capital goods producing sectors relative to the rest of the economy, and deeper trade integration, which induced domestic producers to lower prices and increase their efficiency. Our findings suggest an additional channel through which rising trade tensions and sluggish productivity could threaten real investment growth going forward.

Subject: Imports, International trade, Labor productivity, Prices, Producer prices, Production, Tariffs, Taxes, Trade barriers

Keywords: Capital deepening, Global, Global value chain, Import penetration, Imports, Investment rate, Labor productivity, Price of capital goods, Price of machinery, Producer prices, Relative price, Relative price of investment goods, Tariffs, Trade barriers, Trade barriers, Trade cost, Trade integration, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/134
Stock No:

WPIEA2019134
ISBN:

9781498317429
ISSN:

1018-5941

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