Are production factors allocated efficiently across countries? To differentiate misallocation from factor intensity differences, we construct a new dataset of estimates for the output shares of natural resources for a large panel of countries. We find a significant and persistent degree of misallocation of physical capital. We also find a remarkable movement toward efficiency during last 35 years, associated with the elimination of interventionist policies and driven by domestic accumulation. In contrast, we find a much larger and persistent misallocation of human capital. Interestingly, when both production factors can be reallocated, capital would often flow from poor to rich countries.

The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.