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Natural Resources and Global Misallocation
March 24, 2016Macro, Trade, and Finance Seminar Series

Speaker: Raul Santaeulalia-Llopis is an Assistant Professor at the Department of Economics of the Washington University in St. Louis. More »

Abstract: How efficiently are physical and human capital allocated across countries? Observing differences in the countries' ratios of physical and human capital to output is not conclusive evidence of distortions since those differences may be driven by factor intensity differences in the countries' production functions. To estimate those technology differences, we collect data on the output shares of natural resources for a large panel of countries from 1970 to 2005. The rents to natural resources, and all other factors  fixed in the countries, should not be imputed to physical capital. Our estimates of the marginal product of physical and human capital point to a large misallocation of physical capital in the 1970s and early 1980s. In those years, countries exhibiting highly interventionist policies would have benefitted the most from reducing their barriers to capital formation. Since then, many countries removed those interventionist policies and the world economy moved to a more efficient allocation of capital, a trend driven mostly by domestic capital accumulation. Yet, substantial global misallocation still persist, in particular with the allocation of human capital. We  find not only that the global losses from the misallocation of human capital are much larger, but also that they are not declining over time. Finally, when physical and human capital can both be reallocated, the direction of reallocation can be reverted, as some physical (and human) capital would move from many of the poorer countries to some of richer ones.

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Last Updated: Mar 18, 2016

The Macro, Trade, and Finance Seminar Series is a weekly series hosted by the World Bank's research department. The series invites leading researchers from the fields of macroeconomics, growth, trade, international integration, and finance to present the results of their most recent research in a seminar format. The full list of seminars can be viewed here.

Last Updated: Jul 27, 2015

Event Details
  • Date: March 24, 2015
  • Location: MC 7-100
  • Time: 12:30 – 2:00 pm
  • CONTACT: Shweta Mesipam
  • smesipam@worldbank.org

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