income countries in between (23%).<sup>33</sup> Translated to a share of GDP, public investment spending increases steadily with lower income per capita: 4% of GDP in HI countries, 5% in UMI countries, 6% in LMI countries and 7% of GDP in LI countries. Keefer and Knack (2007) argue that this is likely due to poor quality governance in developing countries, rather than the level of income per se. Consistent with earlier results, private investment is particularly lacking in LI countries – around 13% of GDP versus 17‐18% of GDP in the other three income groups.

**<u>Table 5:</u> Median Values of Baseline Parameters and Paths of Variables by Income Group**

|**Parameter/Variable**|**Note**|**HI**|**UMI**|**LMI**|**LI**|
|---|---|---|---|---|---|
||**A.**|**Capital and**|**Investmen**|**t ‐ Group Me**|**dians***|
|Labor shareβ|(1)|0.561|0.450|0.503|0.520|
|Public capital share of total capitalK<sup>Gm</sup>/K||0.277|0.356|0.330|0.440|
|Capital‐to‐output ratio – TotalK0/Y0<br>(Measured) – PublicK0<br>Gm/Y0 <br>– PrivateK0<br>P/Y0|(2)<br>(3)<br>(3)|3.110<br>0.863<br>2.247|2.706<br>0.965<br>1.741|2.722<br>0.900<br>1.822|2.208<br>0.972<br>1.235|
|Depreciation rate – Totalδ<br>– Publicδ<sup>G</sup><br>– Privateδ<sup>P</sup>|(4)|0.040<br>0.020<br>0.047|0.038<br>0.020<br>0.048|0.042<br>0.020<br>0.053|0.035<br>0.020<br>0.047|
|Public investment share of total investmentI<sup>G</sup>/I|(7)|0.177|0.219|0.243|0.369|
|Investment‐to‐output ratio – TotalI/Y<br>– PublicI<sup>G</sup>/Y|(5)<br>(6)|0.223<br>0.039|0.223<br>0.049|0.236<br>0.057|0.201<br>0.074|
|– PrivateI<sup>P</sup>/Y|(6)|0.183|0.174|0.179|0.127|
|_No of countries_||_48_|_29_|_19_|_12_|
|_. _<br>|**B. T**|<br>**he return t**|<br>**o investmen**|<br>**t(withφ=0.**|<br>**17; ζ=1)***|
|Marginal product of measured public capital<br>_MP_K<sup>��</sup>�φ/�K�<br>��Y�<br>⁄<br>�||0.197|0.176|0.189|0.175|
|Return to_public_investment(MPK<sup>Gm</sup>‐δ<sup>G</sup>)||0.177|0.156|0.169|0.155|
|Marginal product of_private_capital<br>MPK<sup>�</sup>��1 �β�φ�/�K�<br>�Y�<br>⁄<br>�||0.120|0.218|0.180|0.251|
|Return to_private_investment(MPK<sup>P</sup>‐δ<sup>P</sup>)||0.072|0.170|0.127|0.204|
|For a general description of the sources of data, see Table 3. The sa<br>individual countries of PWT 8.1 data for labor share, capital‐to‐out<br>A3.1 for median values of other key variables used in the simulatio<br>Countries are classified according to the 2018 World Bank classifica<br>* Multiply by 100 (except values in ppts) to obtain parameter/varia<br>Note:<br>_(1) _Forβ,individual country values below 0.45 were increased to<br>_(2) _ForK�Y�<br>⁄<br>,individual country values below 1.5 were increase<br>_(3) _K�<br>��Y�<br>⁄<br>andK�<br>�Y�<br>⁄<br>are derived based on the median values o<br>_(4) _δ<sup>�</sup>is derived based on the median values ofδ,δ<sup>�</sup>andK<sup>��</sup>K<br>⁄ <br>_(5) _Median of 15‐year averages across countries over 2001‐2015.<br>Qatar, for which the same variable is tabulated from the IMF F<br>_(6) _I<sup>�</sup>Y<br>⁄andI<sup>�</sup>Y<br>⁄are derived based on the median values ofI<br>⁄|mple size for<br>put ratio, hum<br>ns.<br>tion of count<br>ble values in<br>0.45 and thos<br>d to 1.5 and t<br>fK�Y�<br>⁄<br>and<br><br> .<br> I/Yis gross fi<br>AD Investme<br>Y<br>andI<sup>�</sup>I<br>⁄ .|all variables i<br>an capital gro<br>ries by incom<br>percentage sh<br>e above 0.70<br>hose above 3.<br>K<sup>��</sup>K<br>⁄ .<br>xed capital fo<br>nt and Capital|s guided by the<br>wth and TFP gr<br>e for the 2017 c<br>are or growth t<br>reduced to 0.7<br>5 reduced to 3.<br>rmation (% of G<br>Stock Databas|consistent avail<br>owth. See Appe<br>alendar year.<br>erms (%).<br>0.<br>5.<br>DP) from WDI,<br>e.|ability for<br>ndix 3, Table<br>except for|

> 33 These figures are average investment rates over 2001‐15. In steady state K�/Y�I/Y/�g� �δ�� for _j=G,P_ . If the countries in Table 5 were in steady state, headline GDP growth rates would need to be ≈3% for HI countries, ≈3.8% for UMI countries, ≈4.8% for LMI and ≈5.6% for LI countries, which are fairly close to what we observe.

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